...

Project Governance for Capital Investments Philosophiae Doctor

by user

on
Category: Documents
17

views

Report

Comments

Transcript

Project Governance for Capital Investments Philosophiae Doctor
Project Governance for Capital Investments
Michiel Christiaan Bekker
A thesis submitted in partial fulfilment of the requirements for the
degree
Philosophiae Doctor
in the
Graduate School of Technology Management
Faculty of Engineering, the Built Environment and Information
Technology
University of Pretoria, South Africa
2008
Project Governance for Capital Investments
Declaration
I, Michiel Christiaan Bekker declare that the thesis Project Governance for
Capital Investments is my own work and that the views and opinions
expressed in this work are those of the author and relevant literature
references as shown in the reference list.
I further declare that the content of this thesis is and will not be handed in for
any other qualification at any other tertiary institute.
------------------------------------Michiel Christiaan Bekker
------------------------------------Date
2008
1
Project Governance for Capital Investments
Acknowledgements
The author hereby acknowledges the extensive contributions made by the
following individuals, organisations and institutions:
•
Prof Herman Steyn for his guidance and patience as study leader.
•
Prof Tinus Pretorius, Prof Andre Buys and Prof Krige Visser for their
guidance and valued comments as members of the Internal Review
Panel.
•
Prof Leon Oerlemans from Tilburgh University (Netherlands) for his
expert advice on how to conduct qualitative research.
•
Prof Christoph Bredillet from Lille Graduate School of Management
(France) for his valuable inputs during lunch breaks at the PMI Research
Conference in Montreal Canada.
•
The Graduate School of Technology Management for their support and
funding of travel and accommodation when conducting case study
interviews.
•
Marlene Mulder and Mariette Stirk for sourcing information and arranging
logistics during the study.
•
To all participants in the Delphi study for their time and effort to provide
detail feedback and opinions.
•
Mr Leon Tromp from the Lesotho Highlands Development Agency for
providing valuable input and arrangements during and after the case
study.
•
The top management of the Mozal 1 project, under the leadership of Mr
Rob Barber, for making their valuable time available to discuss the
governance aspects of the Mozal 1 project.
•
Juliet Gilles for editing and formatting this document.
•
My dear friends, too many to name, for all their encouragement.
•
My mother Juliana, for her unwavering support of my education.
•
My late father MC, for his love and belief in me. I know you would have
been proud of not only this, but also my family. I miss you so much!
2008
2
Project Governance for Capital Investments
Thesis Dedication
I dedicate this thesis to my wife Evandré and two boys Christiaan and Werner.
Despite the knowledge, materialism and capitalist demands of modern
society, the quest to live within the Will of God remains paramount. It
determines our family project life-cycle and any deviation from this path will be
corrected through the mere blessings, gifts, wishes and talents God bestowed
uniquely upon us. The collection of these special blessings in our family sets
the path towards God’s Will.
Christiaan, your love for people, passion for your interests and special
relationship with the Holy Ghost inspires me towards the things that are most
important in life.
Werner, your cunning sense of humour, kind heart, wisdom, love for the
simple things in life and ability to defuse any situation makes you a blessing,
not only in our family but also for God’s Kingdom.
Evandré ……. words fail me. Wife, mother, best friend, business partner,
servant of God. Of all the wonderful gifts God has given me you are the
ultimate treasure. Your patience, love and encouragement go beyond human
nature. No form of gratitude will ever be enough to express my appreciation
for who you are and what you do in our everyday lives. I love you with all my
heart.
Above all, the honour, praise and recognition to our Lord Jesus Christ –
beholder of the ultimate Love and Wisdom.
1 Corinthians 13: 9-10;
For our knowledge is fragmentary, and our prophecy is fragmentary. But
when the complete and perfect comes, the incomplete and imperfect will
vanish away.
2008
3
Project Governance for Capital Investments
Table of Contents
Page Number
List of Tables............................................................................................................................ 7 List of Figures .......................................................................................................................... 8 List of Appendices .................................................................................................................. 9 Research Summary ............................................................................................................... 13 Chapter 1: Introduction and Background ........................................................................... 16 1.1 Introduction ................................................................................................................. 16 1.2 Project management .................................................................................................. 16 1.3 Historical development and current state of project performance .................... 18 1.3.1 Evaluating measures of project success .......................................................... 18 1.3.2 How successful are projects? ........................................................................... 19 1.4 Factors influencing project success ........................................................................... 25 1.5 Controlling projects in organisations .......................................................................... 30 Organisation........................................................................................................................... 30 1.5.1 Existing models for project management and control....................................... 32 1.6 Project management – generic or industry specific? ........................................ 33 1.7 Project control – learning from corporate developments .................................. 33 1.8 Projects as temporary organisations ......................................................................... 37 1.9 Summary .................................................................................................................... 40 1.10 Research problem ...................................................................................................... 41 1.11 Research objectives ................................................................................................... 41 1.12 Research goal ............................................................................................................ 42 1.13 The research questions .............................................................................................. 42 1.14 Limitations and assumptions ...................................................................................... 43 1.15 Outline of the thesis .................................................................................................... 43 Chapter 2: Literature study Phase I – The Management of Large Capital Projects........ 45 2.1 Defining an LCP and the need to study its characteristics ......................................... 45 2.2 The importance of LCPs ............................................................................................. 48 2.3 The complexity of LCPs .............................................................................................. 51 2.3.1 Complexity in contracting relationships ............................................................ 51 2.3.2 Complexity in management approaches .......................................................... 53 2.4 Evolutionary developments in governance in LCPs ................................................... 55 2.4.1 Entrepreneurial arrangements .......................................................................... 56 2.4.2 Rational systems .............................................................................................. 59 2.4 3 Governance arrangements ............................................................................... 61 2.4.3 The evolution and current state of LCP management – a summary ................ 63 2.5 Governance principles in LCPs – the point of departure ............................................ 65 2.6 Towards a project governance framework – current thinking .................................... 67 2.7 Towards a project governance framework – a different approach ............................. 72 2.8 Summary .................................................................................................................... 74 2008
4
Project Governance for Capital Investments
Chapter 3: Literature study Phase II - The Evolution of Corporate Governance ............ 76 3.1 The evolution of the corporation ................................................................................. 77 3.1.1 The origin of trade agreements......................................................................... 78 3.1.2 Privatisation ...................................................................................................... 78 3.1.3 The state and the management of national debt .............................................. 82 3.1.4 Separating the state from the company ............................................................ 84 3.1.5 Managerial capitalism and limited liability ......................................................... 85 3.1.6 The emergence of the corporate governance dilemma – separating ownership
from control ................................................................................................................. 86 3.1.7 The institution of formal corporate governance ................................................ 89 3.2 Defining corporate governance .................................................................................. 92 3.2.1 The components of corporate governance guidelines ..................................... 96 3.3 Latest developments in corporate governance ........................................................ 121 3.4 Approaches to the development of a project governance framework ...................... 124 3.5 Introducing governance into the project management field ..................................... 126 3.6 Summary .................................................................................................................. 129 Chapter 4: Research Design............................................................................................... 131 4.1 Developing the research strategy ............................................................................. 131 4.2 The Delphi technique ................................................................................................ 133 4.2.1 Background ..................................................................................................... 133 4.2.2 Criticism of the Delphi ..................................................................................... 137 4.2.3 Epistemological approach towards the Delphi design .................................... 138 4.2.4 Main components of the Delphi technique ..................................................... 139 4.3 Designing, constructing and executing the Delphi study .......................................... 140 4.3.1 Stage 1 – Develop the Delphi question .......................................................... 141 4.3.2 Stage 2 – Selection of respondents ................................................................ 141 4.3.3 Stage 3 – Selection of sample size ................................................................ 143 4.3.5 Stage 5 – Analysis of first questionnaire ........................................................ 145 4.3.6 Stage 6 – Second questionnaire..................................................................... 146 4.4 Summary .................................................................................................................. 146 Chapter 5: Research Results and Concept Framework .................................................. 147 5.1 Delphi – Round 1 ...................................................................................................... 147 5.1.1 Data accumulation .......................................................................................... 147 5.1.2 Results analysis .............................................................................................. 148 5.2 Delphi - Round 2 ....................................................................................................... 161 5.3 The concept project governance framework (CPGF) ............................................... 162 5.3.1 Establishing the basis for CPGF development ............................................... 162 5.3.2 Step 1 – Corporate and project governance alignment .................................. 164 5.3.3 Step 2 – Populating the Project Governance Cells ........................................ 166 5.4 The CPGF................................................................................................................. 184 5.5 Summary .................................................................................................................. 187 Chapter 6: The Case Study Method ................................................................................... 188 6.1 6.2 6.3 2008
The origin and development of case studies ............................................................ 189 Different types of case studies ................................................................................. 189 Designing a case study ............................................................................................ 191 6.3.1 Case study criteria .......................................................................................... 191 6.3.2 Single or multiple case studies ....................................................................... 193 6.3.3 Case study process ........................................................................................ 195 5
Project Governance for Capital Investments
6.4 6.3.5 Summary......................................................................................................... 198 Designing a case study process for this dissertation ............................................... 199 6.4.1 Theoretical framework .................................................................................... 199 6.4.2 Units of analysis .............................................................................................. 199 6.4.3 Single or multiple case studies ....................................................................... 200 6.4.4 Case study protocol ........................................................................................ 202 Chapter 7: Case Studies – Nominal Group Technique and Structured Interviews ...... 204 7.1 7.2 7.3 Case studies utilising NGT ....................................................................................... 204 Case 1 - Mozal 1 ...................................................................................................... 205 7.2.1 Project overview ............................................................................................. 205 7.2.2 Project governance ......................................................................................... 209 Lesotho Highlands Water Project (LHWP) ............................................................... 221 7.3.1 Project history and life-cycle ........................................................................... 221 v) Joint preliminary feasibility study .................................................................... 225 vi) Joint detailed feasibility study ......................................................................... 225 vii) LHWP implementation .................................................................................... 226 7.3.2 Project governance ......................................................................................... 230 Chapter 8: Secondary Case Study Review ....................................................................... 246 8.1 8.2 8.3 Searching for secondary project case studies.......................................................... 247 8.1.1 Key word searching ......................................................................................... 248 8.1.2 Enquiry to project management institutions.................................................... 248 8.1.3 Internet search ................................................................................................ 249 8.1.4 Selected case studies ..................................................................................... 250 Mapping the project outcomes on the CPGF ........................................................... 251 Summary .................................................................................................................. 254 Chapter 9: Conclusions and Recommendations ............................................................. 256 9.1 9.2 9.3 9.4 LCPs and the search for performance improvement................................................ 257 Corporate governance .............................................................................................. 257 Defining ‘project governance’ ................................................................................... 258 Case studies ............................................................................................................. 261 9.4.1 Results – primary case studies ....................................................................... 261 9.4.2 Results – secondary case studies .................................................................. 262 9.5 The project governance framework (PGF) ............................................................... 263 9.6 Recommendations and topics for future research.................................................... 266 9.7 Limitations................................................................................................................. 267 APPENDICES ....................................................................................................................... 269 References ........................................................................................................................... 377 2008
6
Project Governance for Capital Investments
List of Tables
Page Number
Table 1.1
Table 1.2
Table 1.3
Table 1.4
Table 2.1
Table 2.2
Table 2.3
Table 3.1
Table 3.2
Table 3.3
Table 3.4
Table 4.1
Table 4.2
Table 5.1
Table 5.2
Table 5.3
Table 6.1
Table 7.1
Table 7.2
Table 7.3
Table 8.1
Table 9.1
Table 9.2
2008
Cost overruns on large transport projects ................................................ 22
Benefit overestimation figure .................................................................... 24
Factors influencing project success ...........................................................27
Internal project control versus project governance .....................................36
Characteristics of the three main types of institutional arrangements .......57
Institutional arrangements .........................................................................64
Risk categories ..........................................................................................69
Contents of Sarbanes Oxley Act of 2002 ..................................................98
Contents of the King II Report governance .............................................102
Summarised comparison between King II and the Act ............................118
Programme governance versus corporate governance ...........................127
Comparison of qualitative differences among IGM, NGT and Delphi.......135
Delphi question formulation ......................................................................141
Respondent profile ....................................................................................148
Corporate vs project governance alignment ............................................164
Concept project governance framework ..................................................184
Case study protocol ..................................................................................201
Concept project governance framework ..................................................213
Water availability ......................................................................................224
Concept project governance framework ..................................................237
Criteria for qualifying the usage / non usage of available project cases 247
Delphi results ...........................................................................................259
Project governance framework ................................................................263
7
Project Governance for Capital Investments
List of Figures
Page Number
Figure 1.1
Figure 1.2
Figure 1.3
Figure 2.1
Figure 2.2
Figure 3.1
Figure 3.2
Figure 3.3
Figure 4.1
Figure 5.1
Figure 6.1
Figure 6.2
Figure 7.1
Figure 7.2
Figure 7.3
Figure 7.4
Figure 7.5
Figure 7.6
Figure 8.1
Figure 8.2
Figure 8.3
2008
A century of cost overruns .........................................................................23
Project control within organisational hierarchy ..........................................30
Project governance versus project control ...............................................35
The evolution of institutional arrangements for LCPs ................................56
Relationships with potential to build ..........................................................63
Chapter structure .......................................................................................77
The evolution of business relationships towards corporate governance ...79
A typical corporation ..................................................................................87
Research strategy ....................................................................................132
Project life-cycle behaviour ......................................................................168
Case study design types...........................................................................194
Case study process .................................................................................196
Project location ........................................................................................206
Case study sources of information ..........................................................211
LHWP .......................................................................................................223
LHWP information sources ......................................................................231
Original governance structure ..................................................................233
Revised organisation for improved governance ......................................235
Successful project mapping .....................................................................252
Failed project mapping ............................................................................253
Questionable project mapping ..................................................................254
8
Project Governance for Capital Investments
List of Appendices
Page Number
Appendix A
Appendix B
Appendix C
Appendix D
Appendix E
2008
Questionnaire ....................................................................................269
Delphi results: Round 1 ......................................................................272
Delphi results: Round 2 .....................................................................305
Case study protocol............................................................................329
Secondary case studies: Case studies from general literature ..........341
9
Project Governance for Capital Investments
List of Acronyms
AKFED
Aga Khan Fund for Economic Development
APM
Association for Project Management
BEE
Black economic empowerment
BHP
Broken Hills Properties Co Ltd
BLI
Bird Life International
BOOT
Build-Own-Operate-Transfer
BSTDB
Black Sea Trade and Development Bank
CEO
Chief Executive Officer
CFO
Chief Financial Officer
CPGF
Concept Project Governance Framework
CPM
Certified Project Manager
EIA
Environmental Impact Assessment
EIB
European Investment Bank
EBRD
European Bank for Reconstruction and Development
EU
European Union
EV
Earned value
FCO
Foreign and Commonwealth Office
FEL
Front-end-Loading
GAAP
Generally Accepted Accounting Practise
GDP
Gross domestic product
GOL
Government of Lesotho
GoSA
Government of South Africa
IBA
Important Bird Area
IFC
International Finance Corporation
IGM
Interacting group method
2008
10
Project Governance for Capital Investments
IMEC
International Program in the Management of Engineering and
Construction
IMF
International Monetary Fund
IPMA
International Project Management Association
IPQMS
Integrated Planning and Quality Management System
IT
information technology
JPTC
Joint Permanent Technical Commission
LCP
Large capital projects
LHWP
Lesotho Highlands Water Project
LFG
Landfill gas
NGT
Nominal group technique
NYSE
New York Stock Exchange
OECD
Organisation for Economic Co-operation and Development
OTML
Ok Tedi Mining Limited
PERT
Programme evaluation and review technique
PFI
Private Finance Initiative
PGF
Project Governance Framework
PMI
Project Management Institute
PMP
Project Management Professional
PNG
Papua New Guinea
PPPs
Public-private partnerships
PUHCA
Public Utility Holding Company Act
RSA
Republic of South Africa
SA
South Africa
SAAS
South African Auditing Standards
SADC
Southern African Development Community
SDI
Spatial Development Initiatives
SEC
States Securities and Exchange Commission
2008
11
Project Governance for Capital Investments
SHE
Safety, Health and Environment
SIG
Specific Interest Groups
SME
Subject matter experts
UNECE
United Nations Economic Commission for Europe
USA
United States of America
2008
12
Project Governance for Capital Investments
Research Summary
The performance of capital projects, in terms of meeting cost, time and
performance requirements, has always been questionable. Despite the
availability of project management tools, techniques, processes and advanced
software applications, the overall non-performance of large capital projects
has seemed to stagnate over the past century. Calls by financiers and
participating stakeholders have been surfacing since the 1980s for a different
approach to the management of development and implementation of capital
projects, especially those that extend into multiple countries. Rather than
exploring the development of radical new ways for managing the life-cycle of
large capital projects, this research focussed on conducting a review of
general management areas and their response to institutional failure.
Towards the end of the 20th century the corporate world experienced much
turbulence and controversy with respect to responsible financial and corporate
management. Various corporate scandals were reported, the result being the
development and implementation of various forms of corporate governance
principles. The roll-out and application of corporate governance soon became
a global imperative with a fairly positive impact on responsible corporate
citizenship. Given the success and global acceptance of corporate
governance, the potential application of the principles contained in corporate
governance guidelines, and even legislation, in the field of capital projects,
was investigated. The view of projects as a form of temporary organisation
was used to establish the parallel between general and project management
practices, resulting in reference to the term project governance.
In general project management literature, the term ‘project governance’ is
used in various applications, namely information management protection,
project control and even to indicate project portfolio management. However,
no commonly agreed upon definition for the term was found. In order to
contextualise the term ‘project governance’, an in-depth literature study was
done on the evolutionary development of corporate governance as well as the
2008
13
Project Governance for Capital Investments
characteristics of large capital projects. Given the literature background, a
Delphi study was conducted among experienced and knowledgeable project
practitioners and academics to establish a common definition and framework
for project governance. Two important observations from the Delphi study
were first the requirement that project governance should be strongly aligned
with corporate governance principles and second and that a typical project
governance framework should be fairly generic with flexibility to allow for
customisation for specific applications.
Given the input from the Delphi study, two corporate governance frameworks
were selected as the basis from which to compile the principle backbone for a
Concept Project Governance Framework (CPGF). In order to allow for the
multi-country, multi-company participation of large capital projects, especially
where established companies from the West are involved in projects in the
developing world, the corporate governance frameworks of the United States
of America (USA), namely the Sarbanes Oxley Act and the King II Report
from South Africa, were used. These two frameworks represented the thinking
and corporate drives of the two respective countries, and for that matter, the
developed and developing worlds. With input from the Sarbanes Oxley Act,
King II, Delphi results and literature review, the CPGF was constructed for
testing on various case studies.
The case study research was conducted in two phases. The first phase, also
referred to as the primary case studies, comprised an in-depth study on two
large projects involving cross-border participation by various local and
international companies and stakeholders. Although it was intended to select
a mix of successful and unsuccessful projects for the primary study, the
unwillingness of project managers involved in unsuccessful projects to reveal
information made the inclusion of these project cases not viable for this study.
The two primary case studies selected were based on successful projects.
The extent to which these projects formally or informally adhered to or did not
adhere to project governance principles as stipulated in the CPGF was
evaluated. Apart from a review of literature on the primary case studies, the
nominal group technique (NGT) was also employed to extract embedded
2008
14
Project Governance for Capital Investments
information from project role players. Their input was documented and
incorporated into the CPGF.
In order to confirm the general application of the CPGF, a set of secondary
case studies was conducted. These case studies comprised a total of 15
capital projects, selected from various sources and industries. These projects
were categorised as being ‘successful’, ‘questionable’ or ‘a failure’. The
reasons for the outcomes were plotted against the existing CPGF criteria and
it was evident that the reasons for success or failure could be traced to
specific areas in the CPGF. According to the CPGF, the most prominent
areas that determined project performance, whether failure or success, were
the composition of the steering committee as well as adherence to ethics,
responsible conduct and conflict of interest.
Given the results of the research, the study concludes with a proposed Project
Governance Framework (PGF) to be applied to large capital projects,
especially during the initiation phase of the project. It is believed that
adherence to the generic stipulations listed in the PGF will contribute
positively to the successful outcome of large capital projects.
2008
15
Project Governance for Capital Investments
Chapter 1: Introduction and Background
1.1
Introduction
Over the past few decades, large capital projects (LCPs) have had a profound
impact on world economies, development of countries and broader societies.
Mega transportation projects such as the Euro Tunnel, Øresund Bridge and
the new Tokyo Airport changed the way people travel, while big dams such as
the Three Gorges impacted millions of peoples’ lives and their habitat. Private
sector projects in the energy and petrochemical industries have had a
significant impact on the economic growth of countries and it is evident that
there is still no end to development in these fields.
Obviously, where multi-billions of dollars are flowing at an enormous tempo,
the territory becomes fertile for opportunism, corruption, greed and
misconduct. Providing a controlling or governing environment becomes a
necessary evil and the corporate world has reacted strongly by incorporating
corporate governance, especially for companies listed on stock exchanges.
For the single, large project, no formal governance framework exists and the
time may be opportune to investigate the format and structure of a new,
generally applicable project governance framework. The positioning of the
practice of project management in large strategic initiatives has become
crucial. The development of a project governance framework requires sound
knowledge of the main drivers for project management performance, the basic
principles of corporate governance and the formulation of the concept of
project governance.
1.2
Project management
The international community’s interest in project management has increased
exponentially in recent years (Kloppenberg and Opfer, 2000).
As an
organised activity of mankind, projects can probably be found in all
2008
16
Project Governance for Capital Investments
civilisations. Coupled with the accelerating momentum of globalisation,
mastering the concepts of project management is viewed by many as a
progressive step towards improved productivity, efficiency, effectiveness and
competitive advantage.
The definition and development of project management as a management
science has attracted contributions from all spheres of private, public and
academic institutions, resulting in a plethora of views and concepts. According
to Fundahl (1987), the formal definition of project management as a
managerial science can be traced back to the introduction of the programme
evaluation and review technique (PERT) developed for the Polaris Submarine
project during the late 1950s and early 1960s. Subsequently, the further
development and introduction of project management as a new managerial
approach has provided stimulating debate and creative friction. Melgrati and
Damiani (2002) found that the definition and simplification of various project
management models has led to the establishment and solidifying of
theoretical-epistemological foundations of project management ideology.
These foundations have crystallised in various bodies of knowledge, of which
the Project Management Institute’s (PMI) Project Management Body of
Knowledge (PMBoK) (2000) is probably the most well-known internationally.
At present, virtually all industries have adopted some form of project
management approach, which is typified by the introduction and completion of
activities and deliverables through a structured approach of temporary nature,
to eventually serve a specific initiative or goal (Koskela and Howell, 2002).
However, the resulting questions remain: “Does it work?” Do the introduction
of formal project management and the application of the defined tools and
techniques create, sustain or destroy value? How is project performance
defined?
The following section will attempt to provide clarity on the issue of project
performance and success criteria.
2008
17
Project Governance for Capital Investments
1.3
1.3.1
Historical development and current state of project performance
Evaluating measures of project success
What constitutes a successful or failed project? Nicholas (2001:19-21) refers
directly to meeting or exceeding compliance with the original triad criteria of
cost, time and meeting client performance requirements. Gray and Larson
(2000:4-5), Lientz and Rea (2001:15-16) as well as Burke (1999:4-6) share
this view in their various approaches to the management of projects and their
eventual definitions of success.
However, this question seems to be increasing in complexity and views are
multiplying as globalisation and postulation around the topic of project
management take form. Apart from different value systems and cultures
around the globe, success themes also seem to be time-based and
‘fashionable’. Kerzner (1998:6-7) echoes this evolution in project success
parameters by referring the historical definition of the completion of activities
within time, cost and performance to the expanded modern criteria of:
•
With acceptance by the customer/user
•
When you can use the customer’s name as a reference
•
With minimum or mutually agreed upon scope changes
•
Without disturbing the main flow of the organisation, and
•
Without changing the corporate culture.
Cleland (1986) suggests: “Project success is meaningful only if considered
from two vantage points: the degree to which the project’s technical
performance objective was attained on time and within budget; and, the
contribution that the project made to the strategic mission of the enterprise”.
With Cleland’s reasoning as basis, Shenhar, Levy and Dvir (1997) also cross
this traditional view by adopting a four-dimensional model measuring project
efficiency, impact on the customer, business and direct success, as well as
preparing for the future. Pinto and Mantel (1990) provide yet another
2008
18
Project Governance for Capital Investments
derivation to assessing project success or failure and listed as key
parameters:
i)
the implementation process itself
ii)
the perceived value of the project by the customer, and
iii)
client satisfaction.
Complimenting the first parameter from Pinto et al. (1990), a study conducted
by Rwelamila, Talukhaba and Ngowi (1999) provided evidence that,
especially in the developing world, group solidarity among stakeholders
throughout the project life-cycle could, in many cases, be a key factor in the
perceived success or failure by stakeholders, irrespective of the project
outcome. Lastly, but not finally, Dvir and Shenhar (1992) considered:
iv)
profitability
v)
level of sales and new orders
vi)
generating new opportunities for new products and new markets, and
vii) preparing
the
scientific
and
technological
infrastructure
for
the
development and production of future products.
It is clear from the above paragraphs that measures of project success have
moved beyond the traditional cost, time and performance triad. It is evident
that salient aspects are becoming more dominant, especially in a globalised
environment where Western approaches are being challenged. Despite
inconclusiveness regarding project success criteria, research into factors
influencing project success continues to evolve around cost, time and
operational performance.
1.3.2
How successful are projects?
Scientific and statistically representative research results regarding project
performance are not generally available in academic literature. Various
reasons could be attributed to the scarcity of results, of which organisational
confidentiality, lack of records and protection against poor market perception
are but a few. One of the first real quantitative studies published on project
2008
19
Project Governance for Capital Investments
success factors was that by Pinto and Slevin (1988). In their analysis of
approximately 600 respondents they found that critical success factors vary
across the phases of the project life cycle, with two factors namely mission
and client consultation / acceptance being the only two parameters evident in
all the project phases studied. Probably the most comprehensive research on
the topic of actual performance was done by The Standish Group (1995) in
1994. Even though the research was done mostly on software and information
technology projects, the results indicated that, on average, only 16.2% of
projects investigated were completed on time and within budget. For larger
companies, this figures drops to an average of 9%, with 42% of all projects
meeting their original operational intentions. A total of 31% of assessed
projects were considered outright failures. With the study being conducted
every two years, the latest results of the 2002 survey indicated a marked
improvement in on-time and within budget measurements, with 34% of 13,522
projects meeting these criteria (The Standish Group, 2003). Failed projects
accounted for 15% of all projects.
Further to the measurement of project success criteria in the information
technology industry, Atkinson (1999) questioned the simplistic approach of
only evaluating time, cost and quality on projects, especially the quality
aspects which he describes as a ‘phenomenon’ that can vary across the
project life-cycle. Atkinson argued that the ultimate measurement should be
towards stakeholder satisfaction, but fail to provide any quantitative guidelines
and empirically results to substantiate the reasoning.
A more general, industry representative study on project performance was
conducted during 1997 by Frame (1999). The study included the results of a
global survey on 438 projects, covering private and public industries. The
results indicated only 27% of all projects met their original budget, 22% were
on time, while 51% met the desired specifications. Supporting this finding,
results from a study completed by the International Program in the
Management of Engineering and Construction (IMEC) in 2000 (Miller &
Lessard, 2000:14) revealed that of 60 large engineering projects with an
average capital value of $ 1 billion, undertaken between 1980 and 2000, 18%
2008
20
Project Governance for Capital Investments
incurred extensive cost overruns. They also found that almost 40% of the
projects performed so badly that they were either abandoned totally or
restructured after experiencing some sort of financial crisis.
Merrow, McDonnel and Argüden (1988) studied 47 ‘megaprojects’ and found
that only four of them came in on budget, with the average cost overrun being
88%. Of the 36 projects that had sufficient data, 26 of them (72%) failed to
achieve their profit objectives. Based on this analysis, they concluded that
projects with a greater fraction of public ownership, as well as larger, first-of-akind, and one-of-a-kind projects exhibit a worse performance.
Supporting
their observation, Morris & Hough (1987:7-15) also provide a comprehensive
list of (especially) cost overruns on large projects.
Flyvbjerg, Bruzelius and Rothengatter (2003:12-21) completed a study in
2003 on the performance of large infrastructure projects. Their research was
done on projects such as the Channel tunnel, the Øresund Bridge connecting
Denmark and Sweden via road transport, as well as the Great Belt Bridge
(serving the same purpose for rail), Denver Airport, Calcutta Metro in India
and various others, to be discussed in more detail later in this study. The
Flyvbjerg et al. (2003) study assessed two main performance measures,
namely:
•
Cost overrun, and
•
Benefit overestimation.
According to their research, the general performance on the above variables
of large infrastructure projects was appalling. Table 1.1 illustrates the poor
cost performance on some well-known transport projects.
A significant finding from the research was the cost performance since the
early 1900s of large infrastructure projects. Figure 1.1 illustrates the cost
performance of various projects over a period of approximately 90 years.
2008
21
Project Governance for Capital Investments
Table 1.1: Cost overruns on large transport projects
Project
Cost overrun (%)
Boston’s artery/tunnel project
196
Humber Bridge, UK
175
Boston-Washington-New York rail, USA
130
Great Belt rail tunnel, Denmark
110
A6 Motorway Chapel-en-le-Frith/Whaley bypass, UK
100
Shinkansen Joetsu rail line, Japan
100
Washington metro, USA
85
Channel Tunnel, UK/ France
80
Karlsruhe-Bretten light rail, Germany
80
Øresund access links, Denmark
70
Mexico City metro line
60
Paris-Auber-Nanterre rail line
60
Tyne-and-Wear metro, UK
55
Great Belt link, Denmark
54
Øresund coast-to-coast link
26
Source: Flyvbjerg et al. (2003)
The data shows no visible trend toward improvement, despite the
development and availability towards the end of the century of advanced cost
estimation and control techniques.
Flyvbjerg et al. (2003:16) summarise as follows:
“We therefor conclude that cost overrun has not decreased in the past ten,
thirty or seventy years. If techniques and skills for estimating cost overrun in
transport infrastructure projects have improved over time, this does not show
in data. No learning seems to take place in this important and highly costly
sector of public and private decision-making. This seems strange and invites
speculation that the persistent existence over time and space and project type
of significant and widespread cost overrun is a sign that equilibrium has been
reached: strong incentives and weak disincentives for cost underestimation
and thus for cost overrun may have taught project promoters what there is to
learn, namely that cost underestimation and overrun pays off. If this is the
case overrun must be expected and it must be expected to be intentional.”
2008
22
Project Governance for Capital Investments
300
Cost overrun %
200
100
0
-100
1910
1920
1930
1940
1950
1970
1960
Year of decision to build
Figure 1.1: A century of cost overrun
1980
1990
2000
Source: Flyvbjerg et al. (2003)
Strong words, which resound with subjectivity. Nevertheless, they remain
significant enough to address. The technical, financing and organisational
complexity of large projects, high capital, power play and potentially conflicting
agendas are all factors that could lead to the creation of caveats for
mismanagement, poor communication of implied intentions as well as
opportunities for exploitation.
With respect to benefit overestimation, some startling findings have been
published by Skamris (Flyvbjerg et al., 2003:25) on recent (since 1970) large
transport related projects. The findings are presented in Table 1.2 below and
indicate the percentage of actual traffic with respect to original forecast traffic
during the opening year.
The original traffic forecast encapsulates the project benefit and is usually the
prime motivation to launch a large infrastructure project. Although it is
expected that the actual traffic will not necessarily correspond 100% to the
2008
23
Project Governance for Capital Investments
original estimate, deviations of more than 50% less than originally anticipated
leave more questions than answers.
Table 1.2: Benefit overestimation
Project
Actual traffic as percentage of forecast
traffic during the opening year
Calcutta metro, India
5%
Channel Tunnel, UK and France
15%
Miami metro, USA
18%
Paris Nord TGV line, France
25%
Humber Bridge, UK
25%
M65 Huncoat Junction to Burnley Section, UK
35%
Tyne-and-Wear metro, UK
50%
Mexico City metro
50%
Denver International Airport
55%
Source: Flyvbjerg et al. (2003)
These figures support the observation of Flyvbjerg et al. (2003:16) that politics
can lead to deliberate underestimating of cost and overestimating of benefits
as a means to get projects accepted.
The significance of performance or non-performance of large infrastructure
and industrial projects cannot be overemphasized. In all countries, large
infrastructure and industrial projects form the foundation and cornerstone of
economic and societal development, while the maximisation of their benefits
supports the medium to long-term sustainability of a country as a whole.
Therefore a better understanding of the internal process, definition and
management of these large projects is pivotal and will be the focus area of
this study. The eventual control and steering of these projects, and
subsequent performance (or rather lack thereof) in terms of predetermined
benefits and variance from original cost estimates, forms the departing
platform of this research.
2008
24
Project Governance for Capital Investments
1.4
Factors influencing project success
Even though the topic for investigation might seem relevant, necessary and
logical, researchers are quick to acknowledge that research in the field of
project management is complex and very much in the exploratory stage. By
its very nature, project management is multi-dimensional and multidisciplinary, covering all aspects of industry and society; thus exposing itself
to various forms of internal and external influence. These characteristics are
emphasised by various results from empirical and quantitative studies done
over the past 25 years. Many of the results are claimed to be statistically
representative of the total population and therefore derive specific findings
and recommendations. In view of the indicated poor performance of projects,
the following paragraphs will review some of the results of research efforts in
measuring and evaluating project performance. Most of the past research
aimed at finding the main drivers of poor project performance, even though no
general consensus exists as to what a successful project entails. Despite the
lack of overall agreement, an attempt will be made to conclude with a general
consensus regarding causes of project failure.
The investigation into factors influencing project outcome can only be justified
by postulating that the result might also shed some clarity on the concept of
project success. Thus, the rationale behind reviewing the factors influencing
project success is argued from the assumption that commonality in factors
influencing project success will improve the definition of project success itself.
Belassi and Tukel (1996) provided a summary of various authors’ and
researchers’ findings on the factors influencing project success. The first
seven columns reflect the findings from Belassi and Tukel (1996) and
included contributions, with dates of their respective publications, by authors
such as Martin, Locke, Cleland and King, Sayles and Chandler, Baker,
Murphy and Fisher, Pinto and Slevin, as well as Morris and Hough. Together
with other publications such as Gioia (1996) and Black (1996) an updated list
of results is provided in Table 1.3 (Factors Influencing Project Success).
2008
25
Project Governance for Capital Investments
Two aspects are evident from the table. Firstly, there is no universal,
commonly agreed upon list of causes for project failure or success. It is also
alarming to note that the references claim to provide representative results,
with seven out of the nine lists being peer reviewed. This phenomenon adds
to the dilemma of a lack of commonly agreed upon definitions of project
success parameters. These results, mostly from empirical studies, raise quite
a few questions for instance:
•
Do we really understand the concept of a project and its behaviour
through the life-cycle?
•
Do projects differ more across industries than is generally realised,
making generalisation subjective?
•
Could the type of project influence the success parameters?
•
Could different types of projects have different causes of failure?
•
Do we need to rethink the framework of project management to obtain
alternative epistemologies and insights?
These questions surely require close attention for conceptual clarity on project
characteristics.
2008
26
Table 1.3: Factors influencing project success
Martin (1976)
Define goals
Select project
organisational
philosophy
General
management
support
Organise and
delegate
authority
Select project
team
Allocate
sufficient
resources
* Provide for
control and
information
mechanisms
Planning and
review
Locke (1984)
Make project
commitments
known
Project authority
from the top
Appoint
competent
project manager
Set up
communications
and procedures
* Set up
control
mechanisms
Progress
meetings
Cleland & King
(1983)
Project summary
Sayles &
Chandler (1971)
Project manager
competence
Baker, Murphy
& Fisher (1983)
Clear goals
Operational concept
Scheduling
Top management
support
* Control
systems and
responsibilities
* Monitoring and
feedback
Goal
commitment of
project team
On-site project
manager
Financial support
Pinto & Slevin
(1989)
Top
management
support
Client
consultation
Personnel
recruitment
Morris &
Hough (1987)
Project
objectives
Gioia (1996)
Black (1996)
Understanding
complexity
Planning
Technical
uncertainty
innovation
Politics
Lack of internal
communication
Change of
scope
Non-integration of
key elements
Project
manager
competence
Scheduling
Adequate
funding for
completion
Adequate project
team capability
Technical tasks
Community
involvement
* No measurable
controls
Client
acceptance
Requirement
creep
Management
support
Facility support
Accurate initial
cost estimates
* Monitoring
and feedback
Schedule
duration
urgency
Implementation
problems
Funding
Executive
development and
training
Minimum startup difficulties
Communication
Ineffective
implementation
strategy
Dependency on
software tools
Project schedule
* Planning and
control
techniques
Task vs. social
orientation
Troubleshooting
Contractor /
customer
expectations
No shared ‘winwin” attitude
Resources
Logistic
requirements
Market intelligence
Manpower
organisation
Acquisition
* Information and
communication
Continuing
involvement in the
project
Absence of
bureaucracy
Characteristics
of the project
team leader
Power and
politics
Urgency
Environment
events
Financial
contract legal
problems
Leadership and
sponsorship
Education
Not viewed as a
start-up business
Cost
containment
* Information
management
and control
Incentives
Risk analysis
Project Governance for Capital Investments
Secondly, and to some extent encouraging, is the general consensus that
‘control’ or lack thereof, is a major contributor to project failure. In total, eight
of the nine authors suggest this item to be important (see bold items).
However, if there was uncertainty regarding the other characteristics of the
project life cycle, (stakeholder involvement, objectives, funding and numerous
other project variables), control would also be a fallacy.
A major shortcoming evident from the research summarised in Table 1.3 is
the focus on project control at project manager and lower levels. Control is
largely internally focused towards the already defined and approved project.
The control mostly addresses day-to-day activities of approved projects
through the utilisation of project control tools such as scheduling software,
cash flow monitoring, deviation tracking, prevention of scope creep and risk
management tools. The challenges surrounding project control are well
captured in the fairly extensive research done by Rozenes, Vitmer and
Spraggett (2006). They described project control as systems aiming to
minimise the gap between project planning and project execution. Their
research concluded with the important observation that the various project
control systems are largely one-dimensional in their application, with even the
most widely used project control system, namely earned value (EV), only
addressing cost and scheduling. Much research is required to integrate all the
facets of project management into a common control system.
Flyvbjerg et al. (2003) take the problematic state of project control further and
argue that the lack of control may even start during project decision-making
and feasibility studies. In effect, if the decision-making process and those
stakeholders who actively steer the initial phases of the project are not
controlled, the project might be set up for failure due to cost underestimation
and / or benefit overestimation. No ‘traditional’ project control system is then
capable of solving project performance problems. As with the emergence and
formalisation of corporate governance in the corporate environment, the
initiation of a new project calls for an element of ‘independence’ to facilitate
good decision-making. This might assist in a balanced approach to
2008
29
Project Governance for Capital Investments
addressing relevant stakeholder identification and interest protection, rather
than a defence of individual constituencies (Gillibrand, 2004).
1.5
Controlling projects in organisations
The control of projects goes well beyond the use of software tools and
evaluation
techniques.
Although
projects
are
supposed
to
support
organisational goals at a strategic level, they are most often initiated at the
business / tactical level, managed at the functional level and duly executed by
the operational and functional level (Thompson and Strickland, 1996:38). See
Figure 1.2 (Project control within
hin organisational hierarchy).
Strategic
Systems &
methodologies
(b) Control
(a) Control
(c) Control
Goals
Business/Tactical
Functional
Activities
Project
Operational
Organisation
Source: Thompson and Strickland (1996:38)
Figure 1.2: Project control within organisational hierarchy
The above figure attempts to illustrate the link between a project, the control
thereof, and the organisational hierarchy. Projects are there to serve and
mobilise the organisation in its quest for competitive advantage. As project
goals are aligned with corporate strategies and the systems and
methodologies are practised at the tactical / functional level, the management
of each project should eventually be subjected to some form of integration and
hierarchical control. Control, indicated by (a) in Figure 1.2, demonstrates the
measurement required to align operational and functional activities with
2008
30
Project Governance for Capital Investments
strategic goals. The second control tier addresses the next, lower level of
control between work methods (indicated by (b) in Figure 1.2). Together with
the third level of control, illustrated by (c) in Figure 1.2, the work methods,
processes, systems and methodologies aim to eventually address the defined
strategic goals. Although it functions within the normal operation of an
organisation, projects are by nature temporary and dictated with a defined
beginning (PMBoK, 2000:22) and therefore require a more focused approach
to overall control.
On large infrastructure and industrial projects, problems with control are
further aggravated when multiple owners and sponsors are involved.
Especially when multiple countries participate, the interpretation of control
might vary between countries.
But what should a typical project control system comprise? In answering this
question, the hierarchy illustrated in Figure 1.2 could be used as a point of
departure. For example, what project controls are required at each of the
levels: strategic, business, functional and operational? These questions
should be viewed in terms of:
•
Influence of the external environment
•
Type of industry
•
Type of project
•
Project management maturity of the organisation
•
Management support
•
Type of funding
•
Stakeholder profile, and lastly, but most importantly,
•
To what extent are corporate governance policies and practices applied
on single projects, especially when project ownership is shared?
The above items tend to define more specific project issues: the environment,
in which the project functions, conditions, circumstances, criteria for selection
and control mechanisms. These issues raise two questions, namely: whether
the concept of project management is generally applicable or industry specific;
2008
31
Project Governance for Capital Investments
and secondly, is defining project success parameters not part of the control
process?
1.5.1
Existing models for project management and control
The lack of project control, and its subsequent impact on project success, is
hardly a new discovery. Various attempts have been made in the past, and
surely continue on a daily basis, to develop and implement methodologies and
models to assist with the ever elusive control of projects. Methodologies
available, and their origination, include:
•
PRINCE 2 – originated from the Information Technology industry (Office
of Government Commerce, UK: 2003)
•
V-Model – developed in the Space and Defence industries (Forsberg and
Mooz, 2000)
•
P2M2 – generic (Kliem, Ludin and Roberts: 1997)
•
5-Phase PM – generic (Weiss and Wysocki, 1992)
•
and various others.
A specific model, which pertinently addresses project control in larger,
industrial type projects, is the Integrated Planning and Quality Management
System (IPQMS), formalised by Goodman and Ignacio (1982). Although this
model has been applied to infrastructure project cases in the USA, there
appear to be some shortcomings in its structure, especially with reference to
stakeholder management.
Project management is not the only operational discipline / phenomenon that
has been criticised for lack of control. General corporate management is
continuously scrutinised for malpractice and control at all levels of the
organisation. However, research and the formalisation of control in the
corporate environment tends to be more advanced and provides a platform
from which project management can gain knowledge.
2008
32
Project Governance for Capital Investments
Again, the above models contain shortcomings in their exclusiveness of the
immediate environment in which the project functions and focus more on the
day-to-day controlling activities of projects.
1.6
Project management – generic or industry specific?
The debate regarding the general applicability of project management is
continuing. One of the key objectives with the establishment of the PMI in
1969 was the promotion of project management as a management science
with general applicability (Burke, 1999:14-20). Although sound in theory, and
supported by various tools and techniques (developed mainly in the military
environment), reality provided the only true test for sustainability. Practitioners
soon realised the importance of a common vocabulary (Forsberg and Mooz,
2000:28) and industry-specific requirements that should always prevail. This
led to the establishment of Specific Interest Groups (SIGs). Currently more
than 26 active SIGs are registered with the PMI, ranging from oil & gas to
military, service projects and outsourcing, information technology, automotive
and education. One might argue that all the SIGs find their basis in the
foundation laid by the PMI, which is valid, but is it enough to justify a generic
mechanism for project control and success?
Apart from the sympathy towards specific industry characteristics, other macro
factors may also be worth considering such as politics, economic
development status and private versus public sector involvement. With the
number of variables increasing in the project environment, it becomes more
understandable why confusion and different views exist in terms of a definition
of project success parameters and causes of project failure (Crawford and
Pollack, 2007).
1.7
Project control – learning from corporate developments
The science of general and business management has been progressively
formulated since the late 1800s (Shani and Lau, 1996:8-15). In terms of
control, much emphasis has recently been placed on corporate governance.
2008
33
Project Governance for Capital Investments
WelI-known incidents of late include the Enron debacle, Worldcom, Parmalat
and, in South Africa, PSCGG, Regent Bank and CS Holdings. In the words of
the King Committee (King, 2002:20):
“… successful governance in the world in the 21st century requires companies
to adopt an inclusive and not an exclusive approach. The company must be
open to institutional activism and there must be greater emphasis on the
sustainable or non-financial aspects of its performance. Boards must apply
the test of fairness, accountability, responsibility and transparency to all acts
or omissions and be accountable to the company, but also responsive and
responsible towards the company’s identified stakeholders. The correct
balance in an entrepreneurial market economy must be found, but this will be
specific to each company.”
Although the above paragraph addresses the corporate environment, it
explains the context within which projects, as mobilisers of strategic
objectives, should function. Directing corporate progress in the above context
necessitates the definition and contextualisation of project control from a
strategic level, progressing into the concept of project governance. The above
quotation also strongly suggests an external approach to control, as opposed
to a predominantly internal approach associated with project management.
The word ‘govern’ is defined by the Cambridge Dictionary (1995) as “to have a
controlling influence on, to have a direct effect on or to fix or decide”. The term
supports the organisational control approach promulgated to address the
performance of large, strategic projects and project management as an
organisational function.
The concept of governance also provides the opportunity to review control in a
project environment. As argued in previous sections (Sections 1.3 and 1.6),
project control refers mostly to the day-to-day activities of project
management without real consideration of those individuals, forces, motives
and other influences, not necessarily internal to the organisation, that steer
the project. These aspects characterise the environment within which project
managers control projects. The concept is illustrated graphically in Figure 1.3.
2008
34
Project Governance for Capital Investments
External Environment
Project Governance
Organisation
Initiate
Plan
Execute
Project Control
Close
Internal Project
Environment
Project Governance
External Environment
Figure 1.3: Project governance versus project control
Figure 1.3 defines a typical project within an organisation by means of the
project process (PMBoK, 2000:31). For the purpose of illustration, the project
process is presented in a phased manner, namely Initiate, Plan, Execute and
Close. In order to ensure the planned activities are done according to the
initially agreed time, cost and quality criteria, Project Control is introduced to
serve as a mechanism to validate and verify completed activities against
planned intentions. Thus, project control lies within the internal project
environment and is one of the key responsibilities of the project manager. The
second level, within which the project functions, is that of the organisation
itself. This could be any company or organisation that hosts the project. This
type of organisation should comply with good corporate control and
governance and strive to apply good management practices. The external
environment includes the country, shareholders, society, statutory bodies and
various other stakeholders that can, or will, be influenced by the project. In the
view of good global citizenship, the interaction and cognisance of needs,
motives and concerns from this environment should be actively handled in a
project. In an attempt to define the term ‘project governance’ Pinto (2006)
provided the following description: The use of systems, structures of authority
and processes to allocate resources and coordinate or control activity in a
project. However, the definition is still an individual attempt and fails to provide
clear allocation of responsibilities and is also not based on a clear process of
defining ‘project governance’. In the continuous attempt to improve the
2008
35
Project Governance for Capital Investments
definition of ‘project governance’ the fundamental difference between project
control and external governance is summarised in a comparative table below
(Table 1.4 Internal Project Control versus Project Governance).
The external and organisational environment can, to a large extent, determine
the eventual outcome of a project and are therefore key players in determining
whether
the
environment
is
conducive
for
practicing
good
project
management. Thus, governance structures and practices provide the
atmosphere and environment within which projects are developed and
executed.
Table 1.4: Internal project control versus project governance
Internal Project Control
Project Governance
Objective
To ensure compliance with
the Project Plan
To ensure compliance with
Good and Responsible
Corporate Citizenship
What is measured?
Actual versus planned
activities
Acceptance by and
accountability to stakeholders
Mechanisms used to
measure
Project management tools
i.e. Critical path, cash flow,
etc.
Stakeholders’ response and
acceptance as well as level of
transparency
Who is responsible?
Project manager
Project sponsor, steering
committee and top
management
When are control and
governance established
Throughout the project lifecycle
Before project feasibility
In large capital projects there could be numerous shareholders and
stakeholders, with various companies and organisations participating in the
project. Coming from different organisational backgrounds, countries, cultures
and various corporate governance models, a unique ‘organisation’ is
established that will cease to exist once the project is completed. Given this
temporary nature, the establishment of a formal governance environment
within which project control should function seems to be lacking in most
cases, thereby aggravating the problem of lack of proactive control needed on
projects.
2008
36
Project Governance for Capital Investments
To further elaborate and strengthen the possibility of applying corporate
governance mechanisms on projects, which by nature are temporary, it might
be worthwhile to first investigate the validity of viewing a project as being a
temporary organisation. The word temporary is linked to the fixed beginning
and end or once-off occurrence associated with a project life-cycle, while
organisation exemplifies the establishment of a group of human resources
with the objective to deliver on a defined project product or service.
1.8
Projects as temporary organisations
The notion of governance is well developed well for organisations
(corporations). In this section, projects are viewed as temporary organisations.
This implies that governance principles can also be applied to projects.
Even though some literature refers to projects and temporary organisations as
synonyms, it is worthwhile to review the rationale behind the comparison
before investigating the application of corporate governance in the project
environment.
In their attempt to construct a theory of the temporary organisation, Lundin
and Söderholm (1995), borrowed from the behavioural theory (Cyert and
March, 1963) within which the notion of action plays a leading role, rather than
decision-making. Initially, this approach might seem to be contradicting the
view of Flyvbjerg et al. (2003) that many large project failures can be
contributed to the decision-making process. However, Lundin et al. (2003)
substantiate their approach by referring to theoretical and logical reasoning,
which could support the view of Flyvbjerg et al. (2003) from the opposite
perspective.
The theoretical reasoning relates to the general criticism of the rational
assumptions underlying the decision-making process. Even though much
thinking still considers actions as instrumental consequences of decisions, the
input-output relation has been questioned (March, 1981; Kreiner, 1992).
2008
37
Project Governance for Capital Investments
Challenging the traditional approach of action follows decision results in views
such as:
•
Decisions can be made after actions have been taken and they may be
made to legitimise actions already taken
•
Solutions may be implemented even without a problem being properly
defined or analysed (Jönsson and Lundin, 1976)
•
There might not always be a logical connection between decisions and
actions
•
Influential conditions, including organisational culture, institutional norms,
politics, hidden interests and commitment may also influence action in
ways that cannot be analyzed from a decision-making perspective
(Meyer and Scott, 1992).
The first, and especially the last, points above supports the previous quoted
view by Flyvbjerg et al. (2003) that some projects are initiated intentionally
without proper justification.
Miles (1964) and Goodman (1981:2-4) concluded through logical reasoning
that action is a primary concept in the theoretical base of temporary
organisations and that temporary organisations are, almost without exception,
motivated by a need to perform specific actions to achieve specific goals.
Thus, if temporary organisations are viewed as systems for implementation,
action will be a dominant feature. This approach is aligned with the view from
traditional
project
management
literature
that
projects
and
project
management emphasizes relevant action as being fundamental to the
success of a project (Lundin & Söderholm, 1995).
In the further development of the theory of a temporary organisation, Ekstedt,
Lundin, Söderholm and Wirdenius (1999:54) refer directly to the PMI’s
approach to action orientation in the definition of the concept of project
management. This approach resulted in the identification of differentiating
factors between a temporary organisation and a permanent organisation.
These factors include:
•
2008
Time
38
Project Governance for Capital Investments
•
Task
•
Team
•
Transition, and
•
A phased approach, whereby the life-cycle of a temporary organisation is
defined
in
terms
of
a
concept
phase,
development
phase,
implementation phase and, lastly, a termination phase (Lundin and
Söderholm, 1995).
The above listed factors are well aligned with the characteristics of the
traditional definitions of a project and provide a solid departure platform to
investigate the application of corporate or permanent organisations’ controlling
concepts (e.g. corporate governance) to projects.
This dissertation will therefore investigate, develop and conclude on the
applicability of corporate governance in the project management environment
with an emphasis on large infrastructure and industrial projects. The
dissertation will differentiate between project control and project governance,
the former being internally focused and associated with the day-to-day
management of activities on an operational and support level, and the latter
incorporating external factors around strategic and tactical levels as well as
outside stakeholders. Thus, governance focuses on those aspects and
individuals ‘steering’ the overall project.
Project governance is viewed as the framework within which project control
can take place.
Given the above attempt to establish the commonalities and similarities
between poor project performance, project control, corporate governance and
projects being viewed as temporary organisations, it can be concluded that
project management, as a management discipline, has not yet reached the
level of management maturity of the traditional organisational management
sciences and practices. In order to improve on its performance, especially with
large capital projects, the project management fraternity needs to learn from
the more established and researched corporate management concepts in
2008
39
Project Governance for Capital Investments
order to customise good practices to the specific characteristics of the project.
Eventually this research aims to contribute to the science of project
management by attempting to address one corporate management concept in
the form of corporate governance applied to the project environment, with the
aim of eventually improving project performance.
1.9
Summary
The preceding paragraphs provide a short overview of various topics centred
around the management of projects. Starting with a review of defining project
success, the actual success (or lack thereof) achieved in (especially) large
capital projects was discussed. The research done on the potential reason
why projects fail highlighted the ‘lack of project control’ as a common theme.
With the abundance of project control tools and systems available the
question remains: “Why do projects still fail?” - especially large capital
projects? Convincing arguments were reviewed postulating that the search for
project cost overruns (cost underestimation) and benefit underestimation may
exist upon project initiation in the macro political and business environment.
For projects of a large capital nature conducted across borders by multinational companies no form of regulatory guidelines exist except for
adherence to the local and foreign countries’ laws and codes of conduct. This
‘unregulated’ environment, within which billions of dollars change hands quite
often, leaves the project manager in a twilight zone, torn between managing
and controlling the day-to-day project activities in an environment directly
exposed to external influences.
Toward the end of the 20th century, the corporate world was trapped in a
similar situation wherein shareholders were exposed to the ‘unregulated’
behaviour of executives, with devastating consequences. To counter the
potential misconduct, the formalisation of corporate governance was
developed, forcing executives to act more transparently and responsibly. This
dissertation argues that the same, or a similar, environment should be
established for LCP, especially where tax payers’ and shareholders’ money is
2008
40
Project Governance for Capital Investments
used, and that the project manager is assisted with an environment in which
he / she has a reasonable chance to manage the project to success.
Learning from the corporate world, the primary aim of this research is to
define a framework for project governance that will assist in the establishment
of an environment within which a project has a better chance of being
managed to success.
The following sections provide more detail on the definition and goals of the
research.
1.10
Research problem
The research problem is:
No generally accepted project governance framework exists that provides a
formal framework within which large capital projects are initiated, planned,
executed, controlled and closed to ensure the optimum benefit for all
stakeholders.
1.11
Research objectives
The study aims to develop a project governance framework based on
corporate governance principles. The model will form the basis for steering
large capital projects.
The specific objectives of this research are to:
•
Develop a project governance framework for LCPs.
•
Improve the potential of project success through an inclusive process of
developing, negotiating and confirming the governance framework of an
LCP.
•
Extend the use of corporate governance policies beyond internal
company control to project control.
2008
41
Project Governance for Capital Investments
All the objectives extrude to the improvement of project performance within a
specific environment.
1.12
Research goal
The goal of the research is to:
Develop a theory-based and empirically verified project governance
framework that will assist in steering large capital projects towards the overall
improvement of project performance.
This goal aims to provide a better understanding of the characteristics and
dynamics of a project, thereby improving controllability throughout the project
life-cycle.
1.13
The research questions
The first research question to be addressed is:
What should a project governance framework for LCPs comprise?
And secondly:
To what extent have project governance principles been applied on LCPs,
formally or informally, and to what extent can the outcomes be attributed to
the presence or absence of governance principles.
The first question will be investigated through the Delphi technique, while the
second research question will be addressed by means of case studies.
The problem will focus on large infrastructure and industrial projects. This
sector includes:
•
Mining
•
Petrochemical
•
Mineral processing
•
Infrastructure development
•
Public Services
2008
42
Project Governance for Capital Investments
•
Transportation
•
Energy, and
•
Spatial Development Initiatives (SDIs)
1.14
Limitations and assumptions
This study will primarily focus on capital investments exceeding US$1 billion.
However, to test the eventual framework, projects of lesser value but higher
complexity are also considered. This is due to insufficient project information
available on large projects in generally literature.
The study will not develop a new methodology for project management, even
though control elements of current methodologies may be used.
The following is assumed:
The principles of corporate governance are sound, defined well enough and
accepted internationally.
Given the above boundaries, the approach and strategy of the research can
be defined as provided below.
1.15
Outline of the thesis
With Chapter 1 providing an overview of the research, Chapters 2 and 3
expand on the dynamics of LCP and the evolution of corporate governance
respectively. The research design and methodology is discussed in Chapter 4
with the analysis of the results and proposal for a project governance
framework outlined in Chapter 5. The rationale behind case study research is
given in Chapter 6. The actual case study research comprises two sections.
The first section is discussed in Chapter 7 and comprises the investigation
into the application of project governance principles on two large projects. In
Chapter 8, the outcomes of several case studies found in literature (secondary
case studies) are reviewed and commented on against applicable project
governance principles. The conclusions and recommendations are contained
2008
43
Project Governance for Capital Investments
in Chapter 9. The overall structure is depicted graphically in Figure 1.4 (Thesis
structure).
2008
44
Project Governance for Capital Investments
Chapter 2: Literature study Phase I – The Management of
Large Capital Projects
The question of good governance is a global challenge and much effort has
gone into the development and implementation of various frameworks and
models by different countries. To date the management and governance of
large capital projects (LCPs) has very much resided under the concepts of
corporate governance, good management practices in its broadest terms and
adherence to legal and statutory regulations. However, the question remains
what to do when multiple countries and multiple companies participate in the
same project, with each respective role player adhering to its in-country
governance requirements? Also, who will act as ‘watchdog’ for the interests of
other direct and non-direct stakeholders, and what framework should be used
to develop the overall terms, conditions and mutual cooperative agreements
that will guide the overall governance of the LCP? In order to develop such a
commonly understood and generally agreed project governance framework,
the fundamental components, characteristics and functioning of LCPs and
their progress over the years must first be investigated, clarified and
thoroughly understood.
The following paragraphs provide some insight into the characteristics of
LCPs, their complexity and challenges as well as evolutionary developments
in their management. Most of the material is derived from the work done by
Esty (2004), Miller & Lessard (2000), Hughes (1988), Flyvbjerg et al. (2003),
Ekstedt, Lundin, Söderholm and Wirdenius (1999) and Morris & Hough
(1987).
2.1
Defining an LCP and the need to study its characteristics
Within the broader context of capital projects, this dissertation views an LCP
as any large commercial, infrastructural private or public project with a capital
value of US$ 1 billion or more. Despite the fact that very little research has
2008
45
Project Governance for Capital Investments
been done on LCPs (Esty, 2004: 56), they are attractive because their nature,
in terms of magnitude and societal impact, has a profound effect on the
conscious and deliberate decision-making of managers.
Some of the most demanding and challenging managerial decisions centre
around attempts to mitigate costly capital market imperfections. These
imperfections, which include agency conflicts, asymmetric information and
distress, impose a severe burden on the financing costs of organisations.
According to Esty (2004:57) small costs relative to the total project budget
become large absolute costs, thereby increasing the probability of detecting
their existence and observing the relevant positive or, mostly, negative
reaction to the imperfections. For example, an agency conflict that causes a
negative cost of 5% on an asset value of US$ 20 million is ‘only’ US$ 1
million. But, for a US$ 2 billion investment, which is not uncommon in modern
societal developments, the negative cost amounts to US$ 100 million that
translates into immediate over expenditure.
Apart from this potential financial impact on an organisation, alternative
drivers also influence managerial decision-making. The decisions can have no
immediate effect on the value of the committed amount, or they can eventually
manifest into incentive conflicts between managers and funders. For LCPs,
where powerful political agendas and numerous influential parties inevitably
enter the decision-making process, the structural decisions may not eventually
result in the maximisation of value. Esty (2004:58) amplifies the awareness
that LCPs not only affect key decision makers and the companies in which
they work, but also the communities and nations where they are located. The
Mozal project in Mozambique is an excellent example of how an LCP can
change a country for the better (Easterly, 2001). The project comprised the
building of an aluminium smelter to the value of US$ 1.4 billion, a sum that
was approximately equal to the country’s gross domestic product (GDP) at the
time. The success of the project and the investment led to a follow-up
investment of another US$ 1 billion for Mozal II, as well as several other
infrastructure and industrial investments. In the developing world, as in the
case of Mozambique, where the per capita GDP of the country is less than
2008
46
Project Governance for Capital Investments
US$ 100 per year, large-scale investments, developed and executed
responsibly, can dramatically change the business climate and have a positive
impact on the economic development of the country. To emphasise this
observation, the Mozal I project was selected as a case study for this
dissertation and is discussed in Chapter 7 of this document.
Unfortunately, as explained in Chapter 1, the limited quantitative evidence that
exists on the performance of LCPs is not favourable. Industrial projects such
as the Euro Tunnel, Euro Disney, Enron’s Dabhol power plant, Iridium, ICO
Communications, Global Crossing (the Atlantic Crossing and Pacific Crossing
Cables), Globalstart, Murrin Murrin (an Australian nickel mine), as well as real
estate projects such as the Millennium Dome and Canary Wharf have all
encountered financial or social distress.
But the overall picture on project performance of LCPs does not only portray
negativity. LCPs can be viewed from various points of interest. One of the
most important aspects, especially in a capitalistic society, is the actual return
on investment of a large commercial project. According to Esty (2004) an
organisation called S&P Risk Solutions, a division of the Standard & Poor
Corporation, in collaboration with four leading project finance banks,
completed a comprehensive study on the performance of project loans
provided up to 2004. Their analysis shows that project loans have lower
default rates and higher recovery rates than corporate loans. While more
research and data are needed, there seems to be sufficient evidence to
suggest that large projects may be a unique sub-group of projects or major
investment initiatives with different performance characteristics.
Finally, there are important educational reasons for studying large projects. To
optimise investing, financing and operating decisions, senior executives must
possess functional expertise across a broad range of disciplines. As stipulated
by Esty (2004:59), managers of LCPs should understand a broad range of
issues including, financing, competitive strategy, marketing and sales,
negotiation, human resource management as well as business governance
and ethics. This mention of the competencies required by managers of LCPs
2008
47
Project Governance for Capital Investments
is significant and should be addressed when the composition of a project
steering committee is decided on (similar to the composition of a board of
directors in the corporate environment). The study and analysis of LCPs
therefore has the potential not only to generate new academic insight, but also
to improve current practice.
2.2
The importance of LCPs
The importance of LCPs cannot be overemphasized. Projects such as
airports, urban-transport systems, oil fields and power systems engulf some of
the most prominent sectors in the business world. These projects can be
massive in size and complexity and can have long term direct and indirect
effects, while the investment profile could be cyclical over extended periods.
Their effects are felt over many years, especially as auxiliary and
complementary additions are made or where the impact on a country could be
significant. As an indication of demand for capital investment in infrastructure,
the Conway Data Report (Miller & Lessard, 2000:1-2) revealed that by 1999
more than 1,500 LCPs, each worth more than US$ 1 billion were in different
stages of development and construction. These projects covered industries
such as oil, power, transportation and manufacturing.
Projects like these
transform big, seemingly elaborate ideas, into reality. Such projects comprise
initiatives to produce 8,000 megawatts of hydroelectricity from a dam in the
Brazilian Amazon, an oil platform in the stormy North Sea, as well as networks
of roads and tunnels connecting, not only countries, but also continents. It is
quite evident that the number, complexity and overall scope of this type of
mega project have been growing rapidly over the last few decades.
LCPs are important, not only because they transform the physical landscape
and change the quality of human life, but also because they are most often
the stimulant for new forms of collaboration, venturing and contractual
agreements being developed. It is these types of relationships that have
evolved over the years in order to find a win-win situation and / or allocate and
manage the inherent technical and commercial risks. Eventually, one party
needs to be held accountable for overall project performance and obviously
2008
48
Project Governance for Capital Investments
the participating parties would attempt to protect themselves in the process as
well as maximise their benefit.
The ability of a country or nation to develop and implement LCPs, as well as
the
concomitant
investment
in
research
facilities,
education
and
communications, contributes greatly to the progress of a country’s economic
development and the quality of life of its citizens. Figures gathered by Mintz
and Preston (1994) show that in developed countries, investments in
infrastructure represent, on average, one-tenth of total capital investments.
Net public investment in infrastructure as a proportion of GDP ranges from
two percent in the United States to four percent in France and six percent in
Japan. Needless to say, for developing countries, this type of investment is
even more important. In the Middle East and North Africa, US$ 350 billion will
be invested in infrastructure development by 2010. The largest developments
will most likely happen in China as economic growth accelerates to 10% per
annum. The need for power in Asia is such that capacity has to grow by at
least 10 percent per year simply to prevent blackouts and the construction of
the Three Gorges Dam and its enormous hydroelectricity capacity is leading
the way.
The increase in available capital after World War II grew exponentially and by
the 1990s figures of US$ 500 billion in annual investment worldwide became
the norm. In an ever growing capitalist society, this type of capital flow will
draw attention for various reasons, but mainly because of the search for new
business that could benefit the entrepreneur. Although economists still debate
the links between infrastructure investment and productivity, private
investments in infrastructure are growing because many projects are expected
to bring good returns.
Given the complexity of LCPs and the sometimes
limited capacity of the state to manage these types of projects, various
countries have embarked on economic and institutional reforms to allow
private investors to become project sponsors.
The increasing demand for infrastructure and related investment directs
posing the question of effective and efficient ways of delivering LCPs. In
2008
49
Project Governance for Capital Investments
general, public investments and international agencies can now only finance a
small fraction of needed investments, creating major opportunities for private
investors. According to figures presented by N. Roger at the joint OECD and
World Bank workshop entitled “Meeting Infrastructure Needs in the 21st
Century”, held in Paris in 1998, private share in infrastructure investments
ranges from 9 percent and 13 percent in Germany and France to 47 percent
and 71 percent in the United States and the United Kingdom (Roger, 1998 in
Miller & Lessard, 2000:3).
The growing demand for large LCPs is also partly the result of population
growth and partly economic take-off in the more successful developing
countries. According to the Major Project Association (MPA, 1994) nearly half
the world’s population will live in mega-cities by the end of the 20th century
while most of the mega-cities will be in the Third World. Although mega-cities
do not necessarily mean mega-projects, as people flock to the cities and end
up in slums and squatter camps, development will not keep pace. Housing
may need funding through aid while the provision of utilities may result in
LCPs, which will attract some foreign investment. Apart from the construction
industry, three other sectors will require massive investment in LCPs (MPA,
1994). The three sectors are surface transport, aerospace and energy.
Due to their magnitude and substantial footprint, LCPs often meet opposition
from international pressure groups such as Greenpeace, International Rivers
and the World Wildlife Fund. More often than not LCPs will have an impact on
the environment and / or socio-economic activities of the region. Since the
1990s the formal evaluation of a project’s overall impact has had to be
thoroughly studied, communicated and assessed before commencement of
any implementation activities. Selecting only technologically simple and
environmentally friendly projects seems to be the obvious choice. However,
retreating from complicated projects to look for simple winners has obvious
limitations in the sense that the supply of simple projects is finite, and many
projects such as bridges, oil platforms, dams, tunnels and subways do not fall
into the category of small and uncomplicated investments.
2008
50
Project Governance for Capital Investments
As risks and uncertainties increase, project ventures and contracting
arrangements have progressed more toward elaborate contract strategies and
agreements. Public-private partnerships (PPPs), coalitions, joint ventures and
formal partnerships have emerged in various formats to solve societal and
business complexities more efficiently.
All of these new models of
participation and partnership face the challenge of proper governance across
a spectrum of cultures, business practices, ethical beliefs and behaviours in a
move towards the establishment of a commonly understood and agreed
system and process of better management of risks, whereby each participant
assumes the part of the project risk that it is particularly well qualified to
handle.
2.3
The complexity of LCPs
With the ever increasing involvement of private firms at the strategic level of
public sponsored projects as well as LCPs becoming more often crosscountry and across organisational boundaries in nature, the relevance of
traditional
planning
and
project
management
becomes
increasingly
questionable (Miller & Lessard, 2000:3). Given the relative poor performance
of LCPs, it is clear that the gap between the realities of projects and the
guidelines for managing them are widening. Since the inclusion of ‘external’
factors such as environmental impact and socio-economic considerations, the
conventional approach to rational planning, beginning with a clearly defined
technical scope, seems to be becoming largely inadequate for managing
LCPs. In the following paragraphs some of the studies related to the
uncertainty and complexity around the management environment within which
project management needs to operate are reviewed and discussed.
2.3.1
Complexity in contracting relationships
It is becoming clear that managers are asking whether established beliefs and
standard prescriptions still hold true. There appears to be a considerable gap
between accepted views of how to manage large projects and the practices
2008
51
Project Governance for Capital Investments
being observed and studied. It could be that the approach to LCPs is being
modified to deal with an increasing array of stakeholders, yet uneasiness
remains pervasive. This phenomenon is illustrated in Millar et al. (2000:4),
quoting an executive from an engineering contracting firm during their
research into LCPs:
“Many decades of established contracting practices are coming to an end.
Instead of responding to bids from creditworthy sponsors, we have initiated
projects, become investors and learnt to become concessionaires.
Things used to be clear. As engineering consultants, we met ABB as
equipment suppliers; we specified on behalf of our clients and ABB supplied
competitively.
Now we meet them sometimes as partners, sometimes as
investors and sometimes as contractors. We each have to wear many hats
and play different roles in many projects to get business.
Politics used to be at the fringe of project management; now, it seems as if the
fringe has become the core. Politics is at the centre of discussions and
engineering has moved to the periphery. We seem, as an engineering firm, to
have lost control over the factors that influence our future.
As equipment suppliers, it is challenging for us to work with innovative
sponsors, as opposed to responding to detailed bidding documents.
Innovative buyers value our competence and stretch our creativity. What a
change from the times when we had to deal with traditional clients who
preferred detailed specifications and required us to design old-fashioned
solutions.
Public agencies used to get involved as independent regulators protecting the
public, the environment, the fisheries and so on. Increasingly, we have to
participate in the design and prior approval of sponsors’ plans and agree not
to interfere as long as sponsors respect their commitments.
We have to
navigate between the state, the public and the developer. We have to become
partners while remaining regulators accountable to elected officials.”
2008
52
Project Governance for Capital Investments
In this climate, the limitations of established bodies of knowledge are
surfacing. The assumption that LCPs can be scoped, planned and managed
with existing planning techniques does not seem valid anymore.
Prior
empirical studies of large-scale projects have generally focused on technical
and economic factors, but with a changing managerial and external
environment our approach to LCPs, especially during the initial phases, needs
to be re-assessed.
2.3.2
Complexity in management approaches
Since the involvement of private capital and the addition of statutory
requirements for LCPs, the definition of a management approach for a project
has gained various dimensions. In 1994, Gregory Ingram conducted a study
under the auspices of the World Bank into project management challenges
and project performance of infrastructure projects (Ingram, 1994). Ingram
concluded that the cause of poor performance does not necessarily lie with
planning errors but is more inclined towards incentives facing sponsors and
users. He also noted that new methods and institutional frameworks should
be developed in collaboration with international agencies. These observations
support the view of Flyvbjerg et al. (2003).
In one of the most influential studies conducted on the topic of LCPs, Peter
Morris and George Hough (Morris & Hough, 1987) concluded that the poor
performance of LCPs could not be attributed to incompetence per se. In fact,
of more significance are areas not traditionally associated with project
management activities. These include factors such as inflation, escalation,
government induced changes, increased safety and health requirements and
land acquisition charges, to name but a few. In a second study Morris
concluded that traditional procedural approaches could not deal with
externalities, institutions and strategic issues (Morris, 1994).
Johan Bryson and Philip Bromiley (1990) attempted to understand the value
of strategic planning by conducting a quantitative study of publicly available
2008
53
Project Governance for Capital Investments
project case studies.
Their findings supported Frame’s (1999) view that
projects fail due to inadequate estimating rather than poor implementation.
They also concluded that the numerical adequacy of the planning staff
strongly influences project outcome.
From the various studies it becomes clear that projects fail not because they
are technically complicated, but because they face dynamic managerial,
political and institutional complexity. Rising to the challenge of large projects
calls for shaping them during a lengthy front-end period and creating an
environment
within
which
accurate
project
decision-making
can
be
accelerated.
The seeds of success or failure are planted early and, as
believed in this study, create an environment conducive to the management of
large projects. Relationships among stakeholders can generate innovative
solutions but may also lead to trajectories that become degenerative. In
general,
competent
sponsors
refuse
to
engage
in
trajectories
and
management approaches that are likely to lead to failure.
Complexity and dynamic instabilities mean that the future performance of
LCPs, in the current, traditional managerial environment, will remain difficult to
predict. Inherent risks are not always identified upfront and most often evolve
as projects are being shaped and built. According to Millar et al. (2000), in a
study of 60 LCPs by the IMEC research group, turbulence can originate from
two sources: exogenous events, occurring outside of the control of
management, and endogenous events, arising within project organizations. In
their study, project turbulence was measured by the frequency of unforeseen
exogenous and endogenous events. Few projects were completed without
meeting turbulence: in their study projects met, on average, close to five
unexpected events during initiation, construction and start-up whilst some
encountered up to 12 turbulent events.
According to Millar et al.’s definition, exogenous turbulence stems from
political, macroeconomic and social events.
The behaviour of sovereign
authorities and nature are frequent sources of unforeseen events. It may be
argued that these turbulent events should be foreseen. In reality, however,
2008
54
Project Governance for Capital Investments
managers do not always have full control over the behaviour of autonomous
actors who sometimes act opportunistically.
Endogenous turbulence arises from a breakdown of a partnership or alliance,
or from contractual disagreement. Although it may sound pessimistic, it is
commonly believed in practice that parties know that opportunistic actions pay
off: agreements, community interests and reputation are then pushed aside.
In summary, both the exogenous and indigenous events described in the
previous paragraphs form part of the overall governance sphere within which
projects should be managed according to traditional measures of within time,
budget and quality parameters. LCPs represent both a major economic
activity and a poorly understood area of management.
Although these
projects are high stake undertakings, they are important and can be managed.
Their technical difficulties do not condemn them to failure: far more
troublesome are the difficulties arising from governance, complexity,
irreversibility and dynamic instability.
2.4
Evolutionary developments in governance in LCPs
As with the evolution and eventual formalisation of corporate governance (see
Chapter 3), the management of LCPs and the quest for governability is
evolving, but not yet formalised.
Challenges facing the performance of LCPs have been addressed in different
ways over the past few decades. The solutions have been multidimensional
configurations of mutually supporting elements such as laws, regulations,
practices, and roles, which can be termed institutional arrangements.
In developing different types of institutional arrangements that manage and
operate LCPs, Miller and Floricel (2000) borrowed from grounded theorising of
60 IMEC field studies to deduct three distinct institutional arrangements found
in managing LCPs. Complimenting the work of Hughes (1988), these
2008
55
Project Governance for Capital Investments
institutional arrangements (entrepreneurial, rational system and governance)
are given over a time period in Figure 2.1.
Government and
state supply
Entrepreneurial
1830s
Rational
1920s
Governance
1970s
Figure 2.1: The evolution of institutional arrangements for LCPs
Each arrangement arose as innovations were made to face difficulties and
problems caused by the failure of existing methods of sponsoring and building
projects. A detailed explanation of the different arrangements is provided in
Table 2.1.
2.4.1
Entrepreneurial arrangements
Although initially developed by the state, private railroad development was
done in the UK since the early 1800’s. Building on the initial success the idea
crossed the Atlantic Ocean with prominent railroads such as the Boston and
Worchester, Boston and Lowell and Boston and Providence being sponsored
and funded by engineering firms and banks. The notion spread to other parts
of Europe and, in the United Kingdom, railroads were established by private
institutions in order to reduce transportation costs. The major source of
financing for projects during this era was public subscriptions of corporate
stock (Salisbury, 1967).
2008
56
Project Governance for Capital Investments
Table 2.1: Characteristics of the three main types of institutional arrangements
Entrepreneurial
Rational systems
Governance
Institutions
Minimal regulation
Regulated monopoly
(price or rate)
BOT / concession
Economic
context and
trends
Exclusive rights or
concession framework
Environmental
regulation
Space for expansion
Predictable cost
reduction for output
Rules to foster
competition and private
ownership, environmental
regulation
Technology
Cost-reducing and
performance-enhancing
innovations
Room for system
expansion
Emergent
Local
Established dominant
design
Large-scale projects
Urgent need for
infrastructure and room
for new projects
Stasis of core technology
Information and
environmental
technologies
Main actors
Entrepreneurs
Individual investors
Investment banks
Network operators
Regulators
Developers,
entrepreneurs, EPC firms,
banks, network operators,
regulators
Risk allocation
Risks assumed by
entrepreneurs
Risks internalized by
large system
Risks allocated to
participants
Project practices
Internal design
Public stock issues
Multiple construction
contracts
Internal financing,
planning and design
Multiple fixed-price
contracts, bidding
Detailed specifications
Partnerships, alliances
Project financing
Turnkey contracts
Ways to attain
effectiveness
and efficiency
Effectiveness: ownerperformed design,
control over
construction
Efficiency: competitive
bidding
Effectiveness: rational
centralized
Efficiency: scale and
network economies
and competitive bidding
Effectiveness: diversity of
competencies and risk
allocation
Efficiency: ownercontractor partnership
Organisation
forms
Small, dynamic
Hierarchical
Networks
Dominant
ideology
Pragmatic
Modernism (rational
planning, bureaucracy)
Deregulation,
privatization, ecology
Source: Miller & Floricel, 2000
The competitiveness of the entrepreneurial area became apparent with
generation and especially distribution of power in the 1880s. Due to limited
2008
57
Project Governance for Capital Investments
initial regulation several rival companies laid distribution lines on the same
street. The duplication and development of alternating current technology
prompted authorities to pay closer attention to regulation and prevention of
wastage (Hughes, 1988).
Nevertheless, entrepreneurs continue to find innovative ways to conduct their
business and develop both extensive partnerships and detailed contracts. A
good example of such arrangements is Shawinigan Water and Power, which
comprised a group of industrial firms that established Shawinigan Engineering
to use the power it produced to serve all of them (Millar & Floricel, 2000).
Similarly
Montreal
Trust
assembled
Trans-Alberta
Power,
Montreal
Engineering and Co., and several suppliers to build power plants (Innis,
1970).
Despite their initial success and ability to respond quickly to infrastructure
needs, entrepreneurial arrangements had their limitations. The eventual
demise of this arrangement was caused by various internal and external
factors such as:
•
repeated market failures
•
uncontrolled competitive forces
•
duplication of investments in the same area, marginalising potential
returns
•
monopolistic abuses
•
corruption in the handling of subsidies, and
•
probably most importantly since entrepreneurs are profit and optimisation
driven, the entrepreneurial projects often did not cover all infrastructural
needs and only focused on the profitable items. This approach left some
of the rural, non-profitable developments behind. Maintenance of the
facilities was also neglected.
The shortcomings and emergent flaws of the entrepreneurial arrangements
gave rise to a more controlled approach by governments and regulatory
framework started emerging in the form of rational systems.
2008
58
Project Governance for Capital Investments
2.4.2
Rational systems
With the entrepreneurial era serving its purpose, and subsequently
establishing some of the most prominent infrastructure, rational systems
emerged with the development of regulated monopolies. Due to its
interconnectivity, mutual dependencies and careful control required to avoid
duplication and waiting time, railroad projects speared the formation of rational
systems. Combined with technological development that prompted significant
scale and network economies, rational management regulated and facilitated
the construction of large railroad, power, transport and telecommunications
systems (Millar & Floricel, 2000).
Although it might seem as if control over LCPs migrated back to the state, the
parallel development and isolation in operation of systems with a common
backbone had to be rationalised at some stage to improve the economies of
scale. A prominent area where rationalisation became quite evident was the
provision and distribution of electricity. In 1935 the Public Utility Holding
Company Act (PUHCA) introduced regulation of holding companies by the
Securities and Exchange Commission. This development provided regulation
of the sector by the Federal Power Commission.
Rationalisation of utilities spread fast across Europe and resulted in more or
less regulated regional monopolies controlled by government owned firms. By
1926 the British ‘national unity’ government passed legislation that imposed
coordination of all private electricity suppliers by the Central Electricity Board's
national grid. This approach of consolidation progressed and by 1947 the
Labour Government decided to nationalise the entire power sector. The same
approach was taken by the French government and by 1946 all private firms
that had been instrumental in the consolidation of distribution companies were
nationalised to form the state controlled Electricité de France (Millar & Florecil,
2000).
The rational systems approach became predominantly state controlled,
whereby government initiated projects and assumed the risk. Some public
2008
59
Project Governance for Capital Investments
departments did not only take responsibility for designing the infrastructure
facilities but also handed over to an internal construction department who built
and implemented the systems. Funding of these projects came from issuing
stocks or bonds.
Due to the public position of the infrastructure and utility providers, most
governments tried to keep their operations transparent in the form of open
bidding procedures and contractor appointments. However, the access to
project performance information by the media resulted in the publishing of the
numerous cost overruns, especially on nuclear plants (Millar & Florecil, 2000).
Further questions were raised by public protection groups regarding the
consideration of conservation measures, price increases and environmental
considerations. The belief that public enterprises were over protected and not
up to date with modern technologies and techniques started to prevail. By the
1970s the effectiveness of the rational system arrangement was seriously
questioned.
Entrepreneurial and rational arrangements provided institutional designs of
the opposite extremes. Where the entrepreneurial approach strongly
supported private enterprise, input and even control of public services, rational
systems achieved the opposite. It would probably be unfair to describe the two
systems as failures since both indeed had a role to play in their organisational
format during their time. The entrepreneurial era brought about fast
development in the field of infrastructure and utility development, while the
rational arrangement consolidated the current assets and worked towards
optimisation and economies of scale. However, societal development remains
dynamic and, with the addition of immense technological developments during
the 20th century, the inherent inefficiencies of institutional arrangements
became evident. As with many other systems and institutional arrangements
that become obsolete over time, new arrangements had to be developed.
Although above the paragraphs address mostly infrastructure and utility LCPs,
large projects in the private industry also became more exposed to external
factors such as socio-economic and environmental considerations. Thus,
2008
60
Project Governance for Capital Investments
even though many private companies carried the full risk of their investments,
they had to comply with various and increasing numbers of statutory
requirements for project approval.
2.4 3
Governance arrangements
Complete governmental control of LCPs, especially infrastructure and utility
projects, came under serious threat when governments could not fund or
borrow capital for the LCPs. By the late 1970s governments, especially in the
UK, had to start looking at alternatives to secure proper funding and harvest
the optimum methods for project management. These constraints, together
with a general public desire to involve smaller companies in larger projects,
prompted the quest for different institutional arrangements. The reversal of the
rational trend was further accelerated during the Thatcher era of privatisation
(Micklethwait & Wooldridge, 2003). Previously contractual arrangements and
risk allocation were separated by governmental and non-governmental
expenditure. This was done via contractual strategies such as lump-sum or
lump-sum turnkey contracts. Monitoring of work was often replaced with
contractual incentives, such as bonuses for early delivery and high
performance. In some cases turnkey contractors became equity investors in
the project, which gave them additional incentive to ensure sustainability of
the project long after implementation. Under these governance arrangements,
the concerns of project sponsors, financiers and developers shifted from mere
delivery to contractual terms and conditions. With the initiation of the
privatisation concept, the development and implementation of LCPs followed
the merging and collaborative atmosphere associated with privatisation,
creating new questions regarding the validity of project viability (Millar &
Florecil, 2000).
A new era of partnerships, joint ventures, collaboration and mergers dawned.
New institutions and contractual arrangements emerged such as the Private
Finance Initiative (PFI) in the United Kingdom, the Build-Own-OperateTransfer (BOOT) laws in the Philippines, Pakistan and Turkey, and the
concession framework in France (Millar & Floricel, 2000). The BOOT funding
2008
61
Project Governance for Capital Investments
scheme involves a single organisation, or consortium designing, building,
funding, owning and operating the scheme for a defined period and then
transferring ownership to an agreed party (MAF, 2007). With this type of
arrangement, multilateral agencies such as the International Monetary Fund
(IMF), the World Bank, and the International Finance Corporation (IFC)
started to play a major role in project development and implementation.
In the private sector, investment banks, venture capitalists, owners and then
contractors and consultants started the process of vertically integrating into
the development and implementation of projects. Companies in the United
States soon realised that new opportunities existed upstream with their
immediate clients and firms such as Bechtel Power Corporation, General
Electric and Pacific Gas and Electric formed project development entities. In
South Africa, Fluor established a group to study natural gas field capacities in
Mozambique and even smaller mining houses such as TWP formed project
financing divisions to help raise capital for prospective private projects. It was
such practices that prompted widespread concern about the involvement of
engineering houses in the feasibility stages of the project, especially when the
engineering house becomes one of the potential implementation bodies. The
incentive to ‘make’ the project viable is huge, especially if the engineering
house does not participate in the operational performance of the project or the
handover. In the South African mining industry this phenomenon has became
a source of great concern, especially under conditions of in-house resource
scarcity (Raju, 2007). Adding to the requirements for local involvement,
criteria for approval (i.e. mining rights, socio-economic contribution, etc.) and
the influence of key roles players, the interaction of stakeholders becomes
complex.
A very good example of how of multiple influences and interrelationships
interact with one another within an LCP is graphically explained below in
Figure 2.2 (Relationships with potential to build).
Eventually LCPs are moulded into alliances that link sponsors / owners /
developers / clients with EPC contractors, bankers and institutional investors,
2008
62
Project Governance for Capital Investments
and operating firms.
Affected parties
Communities
Clients
Consent
Supply
Efficiency
Compensation
PPA’s tolls
Payments
Banks and
institutional
investors
Sponsors
Leader/partners
Operators
Integration
Incentive
contracts
Permits
Loans,
Covenants
Delivery
EPC
Contractors
Regulators
Figure 2.2: Relationships with potential to build
Legitimacy
State
Source: Millar & Floricel, 2000
Given this picture of multiple stakeholder interaction, the somewhat cynical
reference of Flyvbjerg to the Machiavellian formula is apposite: “Princes who
have achieved great things have been those … who have known how to trick
men with their cunning, and who, in the end, have overcome those abiding by
honest principles” (Flyvbjerg, 2005).
2.4.3
The evolution and current state of LCP management – a
summary
Since the 1700s, many approaches to initiating, developing and building LCPs
emerged. However, as a function of civil society, each approach has
generated failure of some kind. Table 2.2 below provides a summarised
overview of the key inefficiencies and failures of the three main institutional
arrangements as described by Millar & Floricel (2000).
The entrepreneurial approach built projects to solve real regional or local
needs but tended to generate market failure and neglect real macro value and
2008
63
Project Governance for Capital Investments
/ or economies of scale. At the beginning of the twentieth century, as
technology made scale possible, the rational approach to project sponsorship
emerged. The swing in the pendulum saw the state taking ownership of LCPs
but soon finding themselves over-regulated and caught up in a bureaucratic
jungle. The drop in overall productivity, increased rigidity and scarcity of
capital eventually led to the obsolescence of this arrangement.
Table 2.2: Institutional Arrangements – Failures
Entrepreneurial
Rational systems
Governance
Duplicated investment and
destructive competition
Network operators are
symbols of national pride,
tools of vested interests
Vulnerability to government
opportunism
Small projects fail to
capture economies of scale
Fragmented systems and
markets not capturing
network economies
Tendency to form
monopolies to increase
prices
Under-investment in underpopulated areas
Rate discrimination
between places where
there is competition and
places where firms enjoy
monopoly, as well as
between large and small
clients
Bureaucratization:
specialization and formalism
led to slow decisions and high
overhead costs
Arrogance, inability to deal
with ecological groups and
local opposition
Tendency to build
expensive and unneeded
projects
Over-reliance on internal
planning and definition of
projects precludes joint
problem-solving and cost
reduction with contractors and
equipment suppliers
Financial speculation
Incapacity to focus on small or
marginal projects
Issues of probity,
corruption, accountability
and conflict of interest
The ‘capture’ of regulators
who are unable to impose
efficient investment
Complexity of front-end
negotiation processes, which
increased transaction costs
Rigidity of contractual
structures
Incapacity of contractual
structures alone to protect
from failure and opportunism
Predilection for simple and
conservative solutions that
reduces technical risks but
produces technically suboptimal projects
Under-investment in projects
due to increased selection
hurdles
High cost of capital for
private projects using project
financing
Source: Millar & Floricel, 2000
By the turn of the twentieth century, governance arrangements came into
being in the form of special contractual arrangements. However, many
criticisms are directed at this approach for failing to take real public needs into
consideration and for heightening, rather than reducing, risks. With the private
and public sectors collaborating more closely than ever before, opportunities
2008
64
Project Governance for Capital Investments
for corrupt practices arose. Even though it is believed that current governance
arrangements combine private sponsorship with institutional frameworks that
take competition, social consent and public-private partnerships into
consideration, no statutory framework exists that could guide, test and
evaluate decision-maker conduct.
Currently no optimal solution exists. Each type of institutional arrangement
induces some form of failure that has to be corrected. Governance
arrangements aim to remedy the failures of rational systems, but they
currently generate failure due to opportunistic behaviour, state withdrawal
and, possibly, under- investment.
Millar & Floricel’s view is apposite (2000): “The search for a balance of
responsibilities and risks among governments and private participants will
thus need to continue through realignment of governance arrangements.”
The main challenges then for institutional arrangements are:
•
To balance entrepreneurial drive (and greed) with what is good for the
macro economic, social and environmental environment
•
To establish the optimum balance between regulatory controls and
commercial initiatives
•
To be pro-active, rather than reactive, in creating an environment
wherein LCPs can be developed and implemented.
Eventually all stakeholders, including regulators, funding agencies, interest
groups and the public will have to seek a hybrid framework that will govern the
development and implementation of LCPs.
2.5
Governance principles in LCPs – the point of departure
The evolutionary process from entrepreneurial to rational-system to governance arrangements was driven by inefficiencies that became ‘unbearable’ for
society, unaffordable for the state and questionable ethics in business
2008
65
Project Governance for Capital Investments
conduct. From an economic perspective, the evolution can be seen as
contingent adaptations to changing statutory circumstances. Various models
of industrial organisations have been researched in the past, with the majority
seeking the all-elusive perfect balance between industry structure, regulation
and entrepreneurial / shareholder incentives (Laffont & Tirole, 1993).
With governance being the latest form of institutional arrangement, it could
well be that not all of its components, mechanisms and processes have been
identified and developed. Based on debate, research and testing, it is believed
that the conditions required to produce and reinforce competitive structures
are sets of rules and regulations that produce effective constraints, reduce
uncertainty and solve collective-action problems (North, 1990). To achieve
this, a well-defined, stable project governance framework is required, as
opposed to contractual arrangements from which mutual relationships are
derived.
According to Millar et al. (2000) the development and implementation of
coherent and well-developed institutional arrangements is one of the most
important determinants of project performance. Scott (1994, 1) refers to
institutional arrangements as the visible structures and routines that make up
organisations are direct reflections and effects of rules and structures built into
(or institutionalised within) wider environment. This observation fully supports,
and underlines, the motivation of this study. In entrenches the quest for
sponsors and their project managers to be beware of the dangers of
institutional arrangements within their organisations. If fixed and not structured
around the project but rather the organisation, the project team can easily
succumb to operating in a vacuum and fail to find a structure of practices,
guidelines, roles and obligations that help to anchor the unique requirements
of the project.
Although it is accepted that institutional arrangements will
eventually manifest in sets of laws, regulations and agreed practices, these
have to form symbiotic relationships that lead to the provision of effective
ways to develop projects. Scott (1994) defines this phenomenon as regulative,
normative and cognitive structures that form social frameworks within which
projects operate.
2008
These frameworks not only provide a sanctuary for
66
Project Governance for Capital Investments
business conduct but also help to make risk management and the infusion of
governability possible by providing the structure for contracts, binding
agreements and legal action. The development of such a macro supportive
environment for projects in effect ‘anchors’ the project, ensuring a solid point
of reference and stable framework for control (Millar et al., 2000).
Responding to the LCP dilemma, and to poor project performance in general,
Ekstedt et al. (1999) investigated the institutional dilemma of a more projectorientated versus an operational society. Their research supported the
‘anchoring’ conditions described in the previous section with specific reference
to the combination of stability and reliability with the concurrent demands of
flexibility and focus in functional orientated, stable organisations. Their
research concentrated on a project-orientated environment, where teams form
temporary organisations with the specific intention to bring about change and
renewal. Once the project objective is met, the temporary organisation
dissolves. This approach prompts researchers to look beyond the immediate
LCP environment to the business environment in general. The link to
corporate governance emanates from this thinking and, with the acceptance
that the development of general management philosophies are well ahead of
project management philosophies, perhaps a few lessons could be learned
from the corporate governance field.
2.6
Towards a project governance framework – current thinking
Since the start of the third millennium, articles and literature on the
governance of LCPs has steadily increased. Although it is difficult to give
recognition to an individual or institution that may have prompted the process,
some of the leading institutions and academics have added their voices to the
definition of project governance.
Thus far, only two industries have made an attempt to define and
contextualise the concepts of project governance, namely the LCP
environment, specifically PPPs, and the information technology (IT) industry.
There is a substantial difference in the approaches taken by the two industries
2008
67
Project Governance for Capital Investments
towards defining project governance. Although it is not the purpose of this
study to compare the two approaches, it is necessary to mention that the IT
industry focuses more on protection and access control to information (Turbin,
2003; Liu & Yetton, 1995; OGC, 2005), while the LCP related industries
concentrate on creating a macro environment within which projects can
function. For both industries, no mutually agreed upon project governance
framework exist.
The focus of this study is LCPs and one of the most practical attempts to
address compliance to specific management actions and responsibilities thus
far can be found in the document compiled by the United Nations Economic
Commission for Europe (UNECE) (United Nations, 2005). Focusing
specifically on PPPs, the document highlights the importance and complexity
of managing large infrastructure projects and proposes a benchmarking
module to measure the extent to which organisations achieve governance in
PPP projects. Key areas for benchmarking are transparency, public
accountability and sustainable development. Although assessed in fair detail,
the narrow definition of governance towards mostly public interaction could
limit its application to private enterprise and LCP in the broader context of
macro and global applications.
In a study done on PPPs of tollway projects in Indonesia, Abednego &
Ogunlana (2006:622-634) identified risk allocation as a major source of
dispute among the involved parties. They also observed the dual role of the
project manager where, on the one hand, day-to-day project management
activities require much attention and, on the other hand, nurturing the
partnership and interaction with the public can potentially consume valuable
time.
The allocation of risk in PPPs is further elaborated on by Shen, Platten and
Deng (2006). Tending towards the rational system, the construction of the
Hong Kong Disneyland is used as an example of risks that should be
identified and classified. This classification of risk could assist in allocating risk
responsibilities and is given below in Table 2.3.
2008
68
Project Governance for Capital Investments
Fisher, Jungbecker and Alfen (2006) investigated the formation of special
Task Forces on PPPs in Germany. Their research found that task forces
improved potential project delivery and focused on: providing a project support
function, managing inherent project knowledge, establishing the project
policies, and developing the overall framework within which the project should
function.
Table 2.3: Risk Categories
Risk Category
Example
Project-related risks
Cost and time overruns, poor contract management, contractual
disputes, delays in tendering and selection procedures, poor
communication between project parties
Government-related
risks
Inadequate approved budgets, delays in obtaining permissions,
changes in Government regulations and laws, lack of overall
project controls, administrative interference
Client-related risks
Poor project brief, variations in project specifications, delays in the
settlement of contractor’s claims, lack of project control
Design-related risks
Poor soil investigations, delays in design, ambiguities and
inconsistencies in design and design changes
Contractor-related risks
Inadequate estimates, financial difficulties, lack of experience,
poor management, difficulty in controlling subcontractors
Consultant-related risks
Lack of experience, performance delays, poor communication
with other parties
Market-related risks
Increase in wages, shortages of technical personnel, material
shortages, equipment shortages
Source: Shen, Platten and Deng (2006)
Jaafari (2001) elaborated on the complexity of risk assessment and strategic
alignment on projects and calls for a more strategy-based approach to project
management. With this approach risk assessment is not confined to an
individual assessment but includes a broader spectrum that covers promotion,
market,
political,
technical,
financing,
environmental,
cost,
schedule,
operating, organisational, integration and force majeure risks.
2008
69
Project Governance for Capital Investments
In Denmark, where the functioning of PPPs was abolished in 2002, due to
various controversies, the emergence of this type of project institutional
arrangement is again emerging. Under the directorship of government, new
forms of arrangements have been established under the umbrella of metagovernance (Koch & Buser, 2006). This framework, still in its initial stages,
addresses four key areas, namely: comparator, guidelines, feasibility study
criteria and (very significantly) a central competence unit. The competence
and skill level of project initiators and developers, as well as the ability of
project decision makers have become critical issues globally - a problem
experienced by both the developed and the developing world.
The observation of competence, specifically the lack thereof, and the impact
on project decision-making regarding PPPs, is further elaborated on by
Devapriya (2006). In this research it was found that tying performance of
management to the financial structure of regulated PPP organisations is
undermined, especially in developing and emerging economies.
Realising the importance of visualising the project outcome Yeo (1995)
proposed a systems approach to defining LCPs, with specific reference to the
development of the Singapore airport. Due to the complexity of LCPs Yeo
(1995) introduced three systems perspectives namely a large-scale living
systems perspective, hard systematic perspective and soft systemic
perspective. Through integration of the three systems perspective Yeo (1995)
believes mental frames of reference are formed that will assist in planning and
executing projects.
To further strengthen the mandate of the project manager Jolivet and Navarre
(1996) introduced the approach of self-organisation and meta-rules. Their
approach focused on the following:
•
Maximum individualisation
•
Setting up autonomous teams built on principles of self-organisation
•
Performance of audits for the purpose of verifying that all the common
rules and meta-rules are properly applied
2008
70
Project Governance for Capital Investments
•
Project manager autonomy
•
Dynamic segmentation
•
Cellular division by segmentation into operational units on a human scale
•
Resource control under the authority of the project manager
•
Every project has its explicit set of objectives, policies and rules
•
Every project has its dedicated set of written procedures
•
All projects are conducted along a specific and limited set of 12
management principles correlated with success
Even though the approach by Jolivet and Navarre (1996) aimed towards
strengthening the project manager’s position, it still lacked clear directives for
the project sponsor to create an environment within which the project
manager could function.
Through the IMEC study, institutional, corporate and available project
governance literature, and various interviews centred around the British
Private Finance Initiative, as well as the Norwegian project approval process,
Miller and Hobbs (2005) initiated a research program to investigate
governance regimes for large complex projects. The basis of their research is
founded on eight themes, namely:
•
Long, complex and critical front end of LCPs
•
The embeddedness of LCPs into institutional frameworks
•
The construction of coalitions of operating networks
•
High risk and uncertainty
•
The project life-cycle, especially the shaping of the development process
•
The impact of the strategic definition
•
The strength, ability and capability of sponsors
•
The level of intense scrutiny
Given the background and comprehensiveness of the research that eventually
produced the eight themes, there is no doubt that the listed themes should be
part of the core of any governance framework. Accepting the complexity of the
2008
71
Project Governance for Capital Investments
earlier phases of an LCP, the difficulty in identifying risks (let alone allocating
the risks), as well as the importance of establishing the network of
relationships, an eventual framework for project governance should be
instrumental in either establishing an institutional framework or supporting an
existing institutional framework.
The last observation, that of establishing or supporting an institutional
framework, is a key differentiating factor for the continuation of this study.
2.7
Towards a project governance framework – a different approach
Until recently, the inefficiencies of the entrepreneurial, rational and
governance arrangements prompted the quest for better ways of managing
LCPs. In essence, this approach has been reactive, evolutionary and
internally focused. The development of these institutional frameworks was
done with limited benchmarking and very established new institutional
arrangements.
In 2004 the Association for Project Management (APM) published a standard
titled “Directing Change: A Guide to Governance of Project Management”
(APM, 2004). The standard was the first major advancement toward
establishing a framework for project governance. However, it contained the
following points of departure:
•
The focus is on the governance of project management, and not on
project governance - quite a difference in emphasis. Whereas the
standard looks at practising the function of project management (micro),
project governance looks at the environment within which project
management will be practised (macro).
•
Upon completion of the standard, a compliance comparison was done
against the Sarbanes Oxley Act of 2002 as well as the UK Listing
Authority’s Combined Code of 2003. The standard was therefore not
developed with the two statutory codes as points of departure but was
rather aimed at establishing an autonomous institutional framework.
2008
72
Project Governance for Capital Investments
After reviewing the performance of LCPs, the evolution of institutional
arrangements to manage them and the development of a standard to govern
project management, the question arises whether the approach to
establishing a project governance framework should not be altered. To date
the approach has been to establish something ‘new’ in the form of
agreements and controls that can stand-alone. This approach could be
countered with alternatives, variables and cross-questions, such as:
•
Should project governance be a stand-alone framework or should it be
linked to / supported by other governance frameworks, especially
corporate governance?
•
What are the real differences
between project and corporate
governance?
•
Is there anything we could learn from corporate governance as an
institutional arrangement?
•
With limited available theory on project governance, perhaps a
fundamental investigation into the principles of governance could add
value. As with the study on the evolution of institutional arrangements for
LCPs, this will necessitate a similar study on the evolution of corporate
governance.
Given the contents of the APM standard and institutional arrangement
evolution, it is clear that two schools of thought exist, namely:
•
The project control school, whereby the proper management of the total
project life-cycle should allow for eventual success of the project
outcome, and
•
The governance school, where the forms of contract should prevent
misconduct.
The two schools have different shortcomings. The main shortcoming of the
project control school is its reactiveness and its direct exposure to external
variables and forces. The governance school focuses more on institutional
aspects to set up appropriate contractual arrangements. However, as is well
known in the project management fraternity, contract management is a subcomponent of procurement management, which is but one of nine project
2008
73
Project Governance for Capital Investments
knowledge areas (PMBoK, 2004).
No empirical research or data exists that discusses the concept of project
governance in the sense that is described above. To investigate and derive
conclusions on the concept of project governance, further literature study on
the context of corporate governance and its application to LCPs is required,
followed by selective discussions with seasoned project professionals and
academics. The panel of subject matter experts (SMEs) should comprise
people with a minimum number of years’ experience in project management
and preferably, if possible, exposure to entrepreneurial, rational-system and
governance arrangements.
2.8
Summary
In this chapter, an attempt was made to illustrate the complexity of initiating,
forming and implementing LCPs. The difficulties in establishing the most
effective environment for project performance were illustrated by the
evolutionary process of institutional design that could be traced back to the
early 1800s. Well captured by Miller and Lessard (2000), the evolution from
entrepreneurial to rational to governance arrangements each brought about
inefficiencies that had to be addressed by the successor.
The current LCP environment finds itself very much in a state of flux, where a
hybrid of entrepreneurial and rational approaches manifests in some form of
governance arrangement which is per se not well defined. Adding other
constraints such as lack of capital for LCPs in most countries, globalisation,
stringent statutory requirements and external pressure to perform ahead of
any form of competition, the environment within which the project manager
operate becomes, to a large extent, unbearable.
In order to provide some assistance to project managers, as well as to protect
general stakeholders against potential malpractice, some initiatives have been
launched on various fronts to establish some form of governance framework
for projects. The two most significant attempts have been the research
2008
74
Project Governance for Capital Investments
initiated by Miller and Hobbs (2005) and the APM’s “Directing Change: A
Guide to Governance of Project Management” (APM, 2004). The latter is
probably the closest attempt to forming a framework for LCP governance, with
the most significant aspect of the APM document being its focus on governing
the function of project management, as apposed to the project being seen as
an entity, or a temporary organisation, for that matter.
Instead of developing a project governance framework from first principles
and from the perspective of the project manager, this research seeks to gain
insight and knowledge from other management disciplines and practices that
are more mature in the field of governance. In the field of governance the
corporate world has come a long way with much more work done on
establishing the measurement criteria, the contents and the level of
prescriptive practices. As this chapter centred around an attempt to better
understand the management of LCPs, the discussion in the following chapter
will aim towards a better understanding of the evolution of corporate
governance. It must be noted that the history and evolution of corporate
governance as an institutional directive spans a much longer period, with the
lessons learned being very well documented. It is believed that these lessons
learned, and the eventual frameworks arrived at in corporate governance,
could be invaluable in the eventual establishment of a specific framework for
project governance for LCPs.
2008
75
Project Governance for Capital Investments
Chapter 3: Literature study Phase II - The Evolution of
Corporate Governance
The poor performance of large capital projects and lack of formal guiding or
steering mechanisms appear to be major shortcomings in the project
management fraternity. These shortcomings prompted the need to review and
investigate governance principles in the project context, with the eventual
objective of establishing a project governance framework.
The objective of this chapter is to study and develop a literature base for the
logical deduction of a draft project governance framework.
Instead of studying and researching governance from basic and fundamental
principles, an approach of adaptation and application of current corporate
governance principles to large capital projects is taken. This approach is
founded on the belief that corporate development and organisational
management thinking and research are at a more advanced level than that of
project management. The discipline of project management is thus in a
position to learn from corporate developments, but with project management
we need to review the uniqueness of projects with respect to operational
organisations, adapt good practices and refine a customised application.
In building an argument through literature review, this chapter will follow a
sequential approach as graphically explained in Figure 3.1 below.
In order to contextualise the eventual concept of project governance it is
imperative to briefly review the evolution of modern-day corporate
governance, especially the controlling, legal and governing factors and
mechanisms that lead to the development of the concept of a company and
the subsequent formalisation of corporate governance. Secondly, the
components of corporate governance, as well as its application to an
operational entity, are studied. Thirdly, the latest developments in the field of
2008
76
Project Governance for Capital Investments
corporate governance are reviewed. This is followed by a discussion of the
different approaches to be considered when debating further enhancement of
corporate governance and development of a project governance model. The
different approaches will be considered when developing the project
governance model in the following chapters.
The resultant reasoning of the literature review will provide a key input to the
next chapter where the further research strategy and methods are discussed.
3.3. Latest developments in
3.1. Evolution of the company
corporate governance
3.4. Approaches towards
the development of a
project governance
framework
3.2. Defining corporate governance
3.5. Summary
Figure 3.1: Chapter structure
3.1
The evolution of the corporation
According to Micklethwait and Wooldridge (2003:13) the formation of
organised business can be traced back 3000 B.C. Merchants, marauders,
imperialists and speculators dominated business and public life for many
centuries and, although they did not form fully fledged companies, they
created powerful organisations that changed commercial life. These
organisations developed and implemented various concepts of control and
risk sharing and the developments form part of the evolutionary process of
formulating corporate governance. This could also be the starting point for the
further development of project governance. Figure 3.2 below provides a
graphical outline of the process to be discussed and is referred to in detail in
the following paragraphs.
2008
77
Project Governance for Capital Investments
3.1.1
The origin of trade agreements
Baskin and Miranti (1997:29) refer to some of the earliest evidence of formal,
regulated trading that was found in Mesopotamia, where Sumerian families
traded along the Euphrates and Tigris rivers with contracts that rationalised
property ownership. The church served as both bank and state overseer.
During the period 2000 –1800 B.C. the Assyrians had a formal partnership
agreement with church elders, towns and merchants (Jay 2000:49). Under the
terms of the partnership agreement, some 14 investors put 26 pieces of gold
into a fund run by a merchant called Amur Ishtar, who himself added four
pieces of gold. The fund was to last for four years and the merchant was to
collect a third of the profits. This arrangement was very similar to modern day
venture-capital funds used on specific high risk commercial projects.
The Phoenicians, and later the Athenians, took this form of regulatory
capitalism to the ocean, thereby spreading the formation of formal agreements
around the Mediterranean (Micklethwait et al, 2003:14). The involvement of
merchants and traders across country boundaries prompted the Athenians to
develop the concept of formal agreements further by starting to rely on the
rule of law rather than the goodwill of kings. Even though this development
proved to be a significant step in the business separation of king and
businessman, Athenian businesses remained small and mostly controlled by a
few people. This reminds one much of the entrepreneurial approaches
originally taken by individuals who saw opportunity in infrastructure
developments.
3.1.2
Privatisation
The Romans were slightly more ambitious. Initially the collection of taxes was
entrusted to individual Roman knights. However, as the Empire grew, the
levies became too large to be handled by the kingdom itself and by 218-202
B.C. companies (societates) were formed in which each partner had a share.
2008
78
Project Governance for Capital Investments
3000 BC
2000 –1800 BC
Merchants,
Marauders,
Imperialists,
Speculators,
- own initiative,
unregulated
Sumerian
families
Assyrians,
Church elders,
Merchants
- Partnerships,
friends
200 BC
Athenians
- Applied rule
of law, not
relying on the
King
Fall of Rome
500-600 AC
China
- Traders
- Partnerships
- Oral
agreements
1300
Italy
- Corporate
control
- Documenting
1600 - 1700
Separate
ownership
from control
1800
- Chartered
companies
- Convert debit
into shares
- Paper money
1968
1970
- Berle & Means - Legislation
identify
- Regulation
“corporate
governance”
Romans
- Companies
to manage
taxes
- Separation
of company
and
individuals
as liable
entities
1900
USA
- Rise of big
- State “withdraw”
companies
- Joint stock
(automobile)
companies
establish
infrastructure
- Limited liabilities
1980
1900 - 2000
2002
Thatcher
Corporate Formalisation,
- Deregulation scandals legislation and
- Privatisation
regulation on
corporate
governance
- Other areas of application
- PROJECT GOVERNANCE ?
Figure 3.2: The evolution of business relationships towards corporate governance
2008
79
Project Governance for Capital Investments
According to Moore and Lewis (2001:67) these firms later became commercial
suppliers of traditionally government-controlled commodities, such as shields
and swords for the legions (again a reminder of the entrepreneurial
arrangement).
These practices remind one of modern-day privatisation of
state-controlled activities and assets. Moore et al. (2001:97) explained that
further vertical development took place through craftsmen, artisans and
merchants who formed guilds (collegia or corpora) and ‘sub-contacted’ their
skills and trade to the societates. The managers of the guilds were elected
and were supposed to be licensed (Jones, 1974).
Oscar and Mary Handlin (Handlin & Handlin, 1953) refer to the statement
made by William Blackstone, the eighteenth-century jurist, that the honour of
inventing the formal company “belongs entirely to the Romans”. Although an
arguable view, the statement bears truth in the sense that the Romans did
initiate some of the basic concepts of corporate law, particularly the idea that
“an association of people could have a collective identity that was separate
from the individuals belonging to the association” (Micklethwait et al.,
2004:14). They also linked companies to the familia, the basic unit of society.
The belonging partners, better known as socii, seconded most of the
managerial decisions to a magister, some form of general manager or
managing director. The firms also had some form of liability regarding taxes
and the associates and were therefore subjected to some form of governance.
When the Roman Empire started to show signs of weakness during the period
500 to 600 AC, the activity of commercial life moved eastward to India, China
and the Islamic world. According to Micklethwait et al. (2004:15) the prophet
Mohammed was a trader during the years 569 to 632.
Until this day it is still unclear why the Chinese and the Arabs lost their
economic lead to the West. One can argue that their relative failure to develop
sustainable business enterprises contributed to their economic demise. Still,
Islamic law allows for a form of flexible trading partnership which lets investors
and traders jointly pool their capital. However, the law relies on oral testimony,
rather than written contracts. In China’s case, the idea of permanent private2008
80
Project Governance for Capital Investments
sector businesses was mostly undermined by both culture and state
interference. The latter proved to be unsuccessful as bureaucracies crept in,
thereby stifling any entrepreneurial activity for sustainable economic
development. Eventually, it could be argued that China’s obsession to look
inward proved to be their Achilles’ heal (Micklethwaite et al., 2004:17).
Nevertheless, the groundwork for the conceptual framework of a formal
corporate entity, with fixed agreements between participating parties, was
firmly established and awaiting further development.
Subsequent to the demise and stagnation of Eastern and Middle Eastern
business enterprises, the development of organised business activities moved
to Europe - especially to Italy. This fascinating development is well illustrated
by the extraordinary life of Francesco di Mari Datini, well documented by Iris
Origo (1992) and also mentioned by Micklethwaite and Wooldridge (2003).
Datini produced the first well-recorded management database. An orphan
from the Tuscan town of Prato, he went to Avignon around 1335 and worked
as an apprentice before starting his own compagnie as a young man. He was
among the first to define a business vision or motto - as well as being among
the first to not follow a defined motto. Although his motto was ‘For God and
Profit’, his first venture gave evidence of all but that and included some arms
dealing. Later he branched into more noble industries like textiles, retail and
jewellery, but eventually returned to questionable practices that included slave
trading. However, his original intent of doing well came to the fore when the
childless Datini left all his belongings to the poor people of Prato.
Apart from his entrepreneurial flair and active merchandising, Datini was
ahead of his time in terms of corporate control. He recorded everything and
expected the same from his managers. Currently an archive exists containing
more than 150 000 letters, 500 ledgers and 300 partnership agreements,
which seems remarkably modern. His management style contained near-daily
letters to his managers and suppliers asking for news, numbers and
accounting figures and giving reprimands. He even provided formal
promotions and allocated responsibilities to positions and provided legal
papers for appointments. Even his margins seemed meagrely modern at a
2008
81
Project Governance for Capital Investments
mere 9% profit. Datini’s management approach and understanding of the
corporate world was astonishing for the times he lived in and exemplifies
many of the elements captured in the modern day, such as striving for good
corporate practices, governance and control. As quoted by the biographer
Origi (1992:81): “He believed neither in the stability of government, nor the
honesty of any man. It was his fear that caused him to distribute his fortune in
as many places as possible, never trusting too much to any partner, always
prepared to cut his losses and begin again”.
The sixteenth and seventeenth centuries saw the emergence of ‘chartered
companies’ (Micklethwaite et al., 2004:25). This form of company represented
a combined effort by government and merchants to regulate and control the
riches of the new world opened up by Columbus (1451 – 1506). With
established government influence, these companies were the recipients of
royal charters, giving them exclusive rights to trade with demarcated regions
of the world. This arrangement and influence established the ongoing concern
about the political power and interest in corporate decisions, hidden agendas
in decision-making, conflict of interest and eventual bribery. Nevertheless, this
time of corporate development saw the establishment of well-known, long
living companies such as The East Indian Company (that lasted for 274 years)
and The Hudson’s Bay Company - founded in 1670 and still in existence.
Even though there were still numerous small companies operating, the large
chartered companies became dominant in the trading world and were the
forerunners of parastatals and corporate bureaucracy.
3.1.3
The state and the management of national debt
The caveats created by good government intentions and capitalist greed are
best described by some of the earliest recorded financial disasters, commonly
referred to as ‘bubble bursts’. Probably the single largest financial bubble
burst occurred during the early eighteenth century, when the governments of
France and Britain used two chartered companies, the Mississippi Company
in France and the South Sea Company in England, to restructure and service
the cost of debts incurred during the wars that occurred between 1689 and
2008
82
Project Governance for Capital Investments
1714 (Micklethwaite et al., 2004:36). The two companies were used to convert
government annuities, which paid fixed interest, into low-yielding shares.
With pure governmental and statutory intentions, the eventual disaster was
initiated by a brilliant French mathematician called John Law. According to
Ferguson (2001), Law’s plan was to ‘rescue’ France from its rampant inflation,
shortage of coins and unstable currency by introducing paper money. Through
Banque Royale, Law obtained control over the French money supply, bid for a
trading concession and formed the Mississippi Company. Through the newly
formed company, Law converted a large portion of the French debt into
shares in the company. The Mississippi Company obtained control over the
Royal Mint and eventually controlled the entire colonial trade. Building on the
seemingly instant success, Law made a quantum leap in his business venture
and converted the entire national debt into company shares. The public
responded in mass frenzy and even bought shares on call options in order to
‘get in on the action’. Within 15 months between 1718 to 1720, the value of
bank notes issued by Bank Royale rose from 18 million livres to 2.6 billion
livres.
The question of ethics, control, public accountability and eventually
governance, come to the fore through one observation quoted by Dickson
(1993:84): “It is inconceivable what wealth there is in France now, everybody
speaks in millions. I do not understand it at all, but I see clearly that the God
Mammon reigns an absolute monarch in Paris.”
Law avoided the question of what his company actually did. The frenzy could
not last and in early 1720 a large number of investors withdrew their
investment in the Mississippi Company and invested in the bull market in
London (Dickson, 1993:72). In December 1720 the Bank Royale was forced to
abolish paper money and closed down. With a false passport, Law fled to
Brussels, leaving France in complete disarray and chaos.
Although using the same mechanisms and tactics as the Mississippi
Company, the impact of the collapse of the South Sea Company was not as
2008
83
Project Governance for Capital Investments
severe (Micklethwaite et al., 2004:41). The South Sea Company was formed
for the same purpose, i.e. that of converting national debt into shares, and
was proclaimed in January 1720. By July 1720 the share price rose from ₤128
to ₤950, causing a stampede of investors buying company shares. With other
stock companies coming to the fore, the South Sea Company directors used
their influence in parliament to have an act passed that restricted the set-up of
new stock companies. The act was called, ironically, the Bubble Act of June
11, 1720. The act was a disaster for the evolution of the concept of the
corporation and inevitably the South Sea Company went under in December
1720. Eventually the government rescued some of the value by nationalising
the company, leaving investors with huge losses but saving the financial
system.
The reputation of the corporation was in disarray. Sampson (1995:17) quoted
Sir Edward Coke complaining that “Companies cannot commit treason, nor
can they be outlawed or excommunicated, for they have no souls”.
Micklethwaite et al. refer to Edward Thurlow who added to this criticism by
saying “Corporations have no souls to be condemned, they therefore do as
they like.” (Micklethwaite et al., 2004:41) Recovering from a poor reputation,
companies would take about a century before the revitalisation of the
corporate identity came from America during the early 1800s.
3.1.4
Separating the state from the company
During the first half of the nineteenth century, the state began to step back
from corporate affairs. According the Micklethwaite et al. (2004:51-52) the
prompt for change was threefold: the impact of railroads, the legal system and
politics.
The demand for rail transport required large amounts of capital for rail track
development. The state could not fund the development and the
entrepreneurial era, as referred to by Millar and Lessard (2002) and discussed
in length in Chapter 2, emerged. In the corporate world, the formation of these
entrepreneurial relationships led to the concept of joint-stock companies. With
2008
84
Project Governance for Capital Investments
their input limited, the state’s mandate for control over corporate affairs
diminished. The contribution of the legal system to the separation of state and
company came in the form of a ruling regarding the status of Dartmouth
College in 1819. In the ruling, the Supreme Court found that corporations of all
sorts possessed private rights, in which case the government could not rewrite
their charters without involving companies.
The last and most significant contributor to the divorcing of state and
corporations was political. Concerned that the various states were losing
business opportunities, the legislature in New England started to loosen their
grip and eventually their control over companies, setting them free to pursue
their entrepreneurial drive. This was quickly followed by the Massachusetts
state legislature determining in 1830 that companies did not need to engage
in public works to be awarded the privilege of limited liability. In 1837,
Connecticut accelerated the process by allowing firms to become incorporated
in any form of business without special legislative enactment.
3.1.5
Managerial capitalism and limited liability
With the state as, supposedly, protector of public interest and retreating from
direct company influence, the question of limited liability appeared. The first
link to the concept of governance can be found in the arguments that followed
- from the 1830s until modern times - around responsibility and accountability
of corporations and later on the individuals responsible for decision-making.
Fuelled by the development of the automobile towards the end of the 19th
century, the big company concept, or corporation, was firmly established by
the time of the First World War (Micklethwaite et al., 2004:102). Monks and
Minow (1995:6) define a corporation as a “mechanism established to allow
different parties to contribute capital expertise and labour for the maximum
benefit of all participants. The primary reason for the corporation’s existence
is wealth maximisation”. The Penguin English Dictionary (1985) defines a
corporation as “a body made up of more than one person who is formed and
authorised by law to act as a single person with its own legal identity, rights
2008
85
Project Governance for Capital Investments
and duties”. Considering these views, a corporation can therefore be defined
as a legal entity established to group together a number of people who
perform synergistic activities.
Whatever the academic or scientific definition of the corporation, its impact on
business and public relationships has become dominant, especially in an ever
increasingly capitalist society.
3.1.6
The emergence of the corporate governance dilemma –
separating ownership from control
The withdrawal of the state from most of the commercial world and the strong
emergence of the entrepreneurial drive provided the platform for modern
business societies and the foundation for the developed world, as it is known.
From the early 1900s management as a science started to emerge and
corporations started looking at various ways to improve operational
effectiveness of their businesses.
By 1920 the gradual separation of ownership and direct control started to
emerge. The strategic decisions still remained with the owners but they could
not attend to all management details in large corporations. Big company
founders, including King Gillette, H.J. Heinz and John D. Rockefeller, turned
to professional managers to oversee the day-to-day running of their empires
(Micklethwaite et al., 2004:103). It seems as though the typical company
executive, at a strategic level, was classified by professional standards and
corporate loyalty during these years. Later on, they appeared to be closely
related to corporate obsession and the absolute necessity for annual growth in
profits in order to satisfy the faceless shareholder.
King (Institute of Directors, South Africa, 1994) also dates the origin of the
public limited corporation back to the nineteenth century. He mentions the
schism between ownership and control, with reference to the shareholders as
owners of the enterprise and the board of directors as the controlling body of
the company. The directors then appoint professional managers to manage
2008
86
Project Governance for Capital Investments
the company pursuant to policies established by the board. This separation,
and in some instances delegation, of responsibility from directors to managers
became contentious with respect to final accountability to shareholders.
Eventually, management of the modern corporation consisted of professional
individuals, the so-called officers of the corporation, under the direction of the
Chief Executive Officer (CEO).
The board of directors, appointed by and
representing shareholders, appoints the officers of the company to manage
operational activities. A logical deduction could then be that the board of
directors, and their appointed professional management team, should all act
in the interests of the shareholders, who are ultimately the owners of the
corporation and demand maximisation of their interests in the corporation.
Figure 3.3 below depicts part of the organisational structure of a typical
corporation. Gitman (2003) adds to the reasoning by noting that the goal of
the corporation is not to maximise profit, but rather to maximise the wealth of
the shareholders for whom the corporation is being operated.
Shareholders elect
Board of Directors
Managers
CEO
Vice President
Finance
Treasurer
Vice President
Marketing
Owners
Vice President
HR
Vice President
Manufacturing
Controller
Figure 3.3: A typical corporation
While this might have been true in early corporations where the management
team, the board of directors and the shareholders were all inherently the same
2008
87
Project Governance for Capital Investments
people, the modern public corporations can have numerous, and sometimes
countless numbers of different shareholders, many of whom have little or no
influence over the way in which ‘their’ company is managed. This is due to
the small number of shares the typical private investor would keep in relation
to institutional shareholders and even some of the company’s directors and
managers.
In 1932, Adolf Berle and Gardiner Means published the first edition of their
book The Modern Corporation and Private Property (Berle and Means, 1968).
The book was the first to formally observe the distribution of corporate wealth
in America and highlighted the observation that more than half the assets
owned by corporations were concentrated among the top 10% of all listed
companies. For example, AT&T controlled more assets than the 20 poorest
states in the USA. However, these new oligopolies were owned not by barons
but by millions of ordinary shareholders, mostly voiceless and similar to
modern day equity funds or unit trusts. This phenomenon gave rise to the
belief that ‘anybody’s business is nobody’s business’. Berle et al. (1968:219229) further argued that the passivity of these millions of shareholders had
“frozen the absolute power in the corporate management arena”. In economic
terms, the interest of the agent was separate from that of the principal.
Although theorists always promulgated the separation of ownership from
control (Micklethwaite et al., 2004:112), Berle and Means were the first to
identify corporate governance as a practical problem. According to
Micklethwaite et al., in 1942 Peter Drucker, in his book The Future of
Industrial Man, added his voice to the capitalistic dilemma by arguing that
companies had a social dimension as well as an economic purpose. The
recognition of the social dimension was the beginning of the ‘triple bottom-line’
concept prevalent in modern corporate governance policies and which
comprises a balanced approach to economic, social and environmental
impact and consideration.
During the 1970s big companies were expected to support the post-war
consensus and to be more considerate of their stakeholders. The corporate
environment became more regulated and in 1971 Richard Nixon introduced
2008
88
Project Governance for Capital Investments
another two forerunners of corporate governance elements, namely the
Environmental Protection Agency and the Occupational Safety and Health
Administration (Yergin & Stanislaw, 1998:60-64). However, frustration with
over-regulation soon became apparent and by 1979 deregulation received a
major ‘boost’ when Margaret Thatcher came to power after public resentment
over strikes and staggering inflation. Her approach to privatisation was initially
greeted with scepticism and was tagged by the Tories as ‘corporatisation’
(Micklethwaite et al., 2004:122-123). But by 1982, privatisation had gained
momentum, with the government selling its shares in North Sea oil and gas
companies such as British Gas. This was followed by the sale of British
Airways and British Steel. Other European companies followed suit with
Volkswagen, Lufthansa, Renault, Elf Aquitaine and ENI either wholly or partly
privatised. In Latin America and Southeast Asia, governments also sold off
telecommunication companies and utilities, albeit to their loyal supporters. The
most radical privatisation spree took place in Russia under the leadership of
Yeltsin. From 1992 until the turn of the century more than 18000 companies
were privatised in Russia.
By the end of the twentieth century, the unregulated business environment
saw the emergence and establishment of a breed of corporate managers
embracing management concepts and techniques to add to, and defend,
shareholder value. Pressure on executive boards for bottom line financial
performance increased dramatically and Chief Executive Officers and their
Vice-Presidents earned astronomical pay cheques as part of their ‘risk
compensation’.
3.1.7
The institution of formal corporate governance
In 1991 the London Stock Exchange, the United Kingdom Financial Reporting
Council and the British accountancy profession commissioned the Cadbury
Commission to investigate and report on “Financial Aspects of Corporate
Governance”. The Cadbury Committee was born out of the scandals that
rocked the UK capital during the late 1980s (Dunlop, 1998).
In the USA
nearly everything had changed by 2002. Many of the top corporate officials
2008
89
Project Governance for Capital Investments
who had graced the front covers of business magazines and journals were
facing criminal charges. Corporate accounting scandals plagued some of the
most prestigious and largest institutions, namely Enron (Cruver, 2003),
WorldCom, Xerox, AOL Time Warner, Tyco and Arthur Anderson. In Europe
the same emerged with Ahold, Bertelsmann, Vivendi, SK Corporation, ElfAquitaine, Londis and Parmalat being the most prominent offenders. The
general public started losing faith in the corporate system and a survey
conducted by Seib and Harwood (2002) indicated that more than 70% of
American people had no faith nor trust in the corporate world and about 60%
believed corporate misconduct was a ‘widespread problem’. Something had to
be done and by middle 2002 President Bush had signed the Sarbanes Oxley
Act (2002), which is arguably the toughest piece of corporate legislation yet to
be tabled and which formalises corporate governance into legislature,
especially with regard to auditing.
During this period many other countries launched their own investigations
(Gillibrand, 2004:6), including Australia (Bosch Report), Canada (Dey Report)
and India (Bajaj committee), to name but a few.
Although the end results are clear, namely corruption followed by government
‘retaliation’ by means of strong legislature, the question needs to be asked:
“Where did everything go wrong?” Two schools of thought are evident
(Micklethwaite et al., 2004:150-151). The first school includes the Bush
administration’s belief that corruption resulted from ‘bad apples’ - the actions
that prompted the scandalous behaviour originated from individual greed and
not necessarily from a flawed system. The second school of thought adopted
the ‘rotten root’ approach. They believed that the problems originated with
privatisation in the 1990s when there was a dramatic weakening in proper
checks and balances on accounting and good management practices.
Outside directors had compromised their objectivity and independence by
having questionable and often conflicting financial relationships with the firms
that they were supposed to oversee. Additionally, too many government
regulators had been recruited from industries that they were supposed to
police. Lastly, the ‘rotten root’ school of thought believed that auditors had
2008
90
Project Governance for Capital Investments
become business advisors rather than mere scorekeepers of shareholders’
interest. Eventually, the old 1920s question of aligning the interests of those
who manage companies and those who own them re-emerged.
These two schools of thought, especially the ‘rotten root’ argument, have a
strong relation to the large capital project cost overrun dilemma raised by
Flyvbjerg (2003:16), referred to in Chapter 1 and repeated below:
“We therefor conclude that cost overrun has not decreased in the past ten,
thirty or seventy years. If techniques and skills for estimating cost overrun in
transport infrastructure projects have improved over time, this does not show
in data. No learning seems to take place in this important and highly costly
sector of public and private decision-making. This seems strange and invites
speculation that the persistent existence over time and space and project type
of significant and widespread cost overrun is a sign that equilibrium has been
reached: strong incentives and weak disincentives for cost underestimation
and thus for cost overrun may have taught project promoters what there is to
learn, namely that cost underestimation and overrun pays off. If this is the
case, overrun must be expected and it must be expected to be intentional.”
Apart from the two main schools of thought, Bloxham (2002) listed increased
stakeholder activism, globalisation and stronger scrutiny of board practices as
three of the major changes that organisations of the 21st century had to deal
with, and which pressured them into misconduct. Adding to the unravelling of
the underlining reasons for misconduct, Dunlop (1998) reasoned that the need
for effective and efficient corporate governance procedures became
necessary due to:
•
Increased large-scale business failure and excessive executive
remuneration in the United Kingdom,
•
Capital market abuse in the United States, and
•
Corporate and political abuse in Japan.
Although it should be accepted that greed and corruption are inherent to any
society, mechanisms should be put in place to prevent their occurrence as far
2008
91
Project Governance for Capital Investments
as possible, to limit their damage and to punish those who make themselves
guilty of such misconduct. The Sarbanes Oxley Act was the USA’s way of
establishing governance criteria for the corporate environment.
Even though they may differ in their detail, virtually all corporate governance
guidelines are entrenched in the fundamentals of corporate scandals and
social responsibility.
In summary, the evolution of the corporation always had to contend with what
is good, ethical, profitable and responsible. In an unregulated, informal, freetrade environment, trust was the cornerstone. However, the abstract concept
of greed found comfort in a capitalistic world evolving towards a point of no
return for some of its role players. Government and corporations learned the
hard, expensive and embarrassing way, but eventually developed a platform
for other management disciplines (i.e. project management) to adapt from.
To provide further clarity on how the principles of corporate governance can
be applied to a project management environment, the next paragraphs will
unravel the definition, logic, components and mechanisms of corporate
governance guidelines.
3.2
Defining corporate governance
According to Drori, Meyer and Hwang (2006), the term governance can be
traced to the Greek verb kubernân, which means to ‘steer a ship or wagon’.
The term was also used metaphorically by Plato to designate the governing of
men, which gave birth to the Latin verb gubernare, which is still found in
several Latin-based languages. In the early thirteenth century the French term
gouvernance appeared, while during the same time the Portuguese used the
word governançã to refer to politico-administrative processes. During the
same time the English started using the word governance to refer to the action
or manner of governing. Somehow the term remained and is used widely in
the context of governing institutions.
2008
92
Project Governance for Capital Investments
In the process of defining corporate governance, Smerdon (1998:5) first
attempted to define corporate responsibility by means of a ‘shareholder
theory’ that describes the primary responsibility of the directors of a company
to act in the interest of increasing shareholder value.
The theory goes:
“Unless companies look after their suppliers, customers, members of staff and
the environment (in other words their stakeholders), shareholder value is likely
to suffer anyway, and so a well-run board will have to deal with these interests
to ensure long-term corporate health and therefore shareholder value”.
According
to
Monks
and
Minow
(1995:2-10)
corporate
governance
encapsulates “the relationship between the various participants in determining
the direction and performance of a corporation”. The primary participants in a
corporation are the shareholders, the board of directors and management led
by the Chief Executive Officer (CEO). The reason for viewing these
participants as primary is due to the fact that they are responsible for shaping
the corporation’s focus, its direction, the level of productivity and
competitiveness, and ultimately its viability and legitimacy. The secondary
participants include employees, customers, suppliers, creditors and the
community who are influenced by the other participants that are of equal
importance to the corporation and its activities. In their view, corporate
governance promotes a type of active shareholder that has an interest in the
conduct and performance of the corporation in which the shares are kept. It is
proposed that this interest should promote a level of responsibility on the side
of the shareholder, especially in terms of conduct that can impact negatively
on the environment and society in which the corporation operates. These
actively involved shareholders can also be referred to as shareowners. The
term reflects not only the involvement of the shareholder but also signifies that
the shareholder takes ownership of the shares that he keeps in the
corporation, and ultimately of the direction and conduct of the entity. Although
easily definable for a private corporation, the question remains as to how
these principles are applied to other entities where large capital is at stake, for
example public service projects, especially when procurement takes place
within the private sector? In such cases, the shareowner may well be the tax
2008
93
Project Governance for Capital Investments
paying public and mechanisms of governance may well be functioning in a
different format.
Naidoo (2002:2) refers to corporate governance as the responsible leadership
of companies. She refers to responsible leadership as being transparent,
answerable and accountable to the company’s identified stakeholders. She
notes that a company’s stakeholders are those groups or individuals who are
either directly or indirectly interested in the affairs of the company. Direct
interest means direct interest in its financial success (shareholders, creditors
and employees) whilst indirect interest means those who are affected by the
company’s
activities
(communities
and
governments).
In
Naidoo’s
introduction, the issue of division of ownership of a company and control of a
company is highlighted. The ‘issue’ results in the directors of a company
representing the de facto owners (the shareholders) in directing and
controlling the affairs of the company. Today this is the norm in almost all
publicly listed corporations and is also cited as being the core problem of
corporate governance. The board of directors (in their policy making) and the
officers of the corporation (in the execution of these policies) reveal a general
disregard for the influence on the environment and the community of their
actions in maximising personal and shareholder benefit.
King (2002:10) defines corporate governance simply as the system by which
companies are directed and controlled. He does mention though, that while it
is a simple task to state the concept, the various stakeholders who have
involvement in corporate governance in modern corporations have made it
more complicated. King attributes this increased difficulty in the establishment
of corporate governance to changes that the modern day brought in the
corporation, especially the introduction of professional managers and the
controlling shareholding changing from families to institutions.
According to the Penguin Reference Book (1985), corporate governance is
concerned with “keeping the balance between economic and social goals and
between individual and communal goals”. Thus, corporate governance
2008
94
Project Governance for Capital Investments
attempts to address not only financial control, but also a number of other
issues, such as social and environmental responsibility (King, 2002:92).
It is therefore reasonable to deduce that corporate governance was
established to address the growing concerns of institutional shareholders with
the way in which the companies they hold shares in are managed, and to
address the transparency, accountability and responsibility of the company’s
board of directors. Corporate governance was subsequently expanded into a
practice by which companies are managed and controlled. According to
Smerdon (1998:21) this practice includes:
•
The creation and ongoing monitoring of a system of checks and
balances to ensure a balanced exercise of power within a company;
•
The implementation of a system to ensure compliance by the company
with its legal and regulatory obligations;
•
The implementation of a process whereby risks to sustainability of the
company’s business, are identified and managed within agreed
parameters; and
•
The development of practices that make and keep the company
accountable to the broader society in which it operates
While corporate governance is practically still in its infancy, a large amount of
literature is available on the topic, albeit not all of this is at an advanced level
of peer reviewed research publications. These include practical applications
and guidelines for implementation into corporate organisations.
However, throughout the review of the evolution and development of
corporate governance, it became clear that the principles have not been
applied extensively in other areas of strategic and operational conduct. This
observation further strengthens the argument that perhaps the time is
opportune to investigate its application in other forms of management
disciplines, such as project management.
2008
95
Project Governance for Capital Investments
In order to further prepare the adaptation of corporate governance to project
management, the next paragraphs explore the current state of corporate
governance in a more detailed and practical way.
3.2.1
The components of corporate governance guidelines
As mentioned, the single goal of a corporation is to maximise shareholder
wealth. Originally, corporate governance provided guidelines for proper
corporate conduct for the protection of stakeholders’ interests and shareholder
value. Further developments saw a more formal control approach through the
specification of actions that the officers of a corporation and the board of
directors of the corporation have to take to achieve these objectives.
In some countries, corporate governance has been taken to a level where the
guidelines and controls are enacted by federal laws. One such example is the
Sarbanes Oxley Act of 2002 (The United States of America, 2002), an act
proclaimed by the Congress of the USA.
Whether corporate governance is enacted by law or only a set of best practice
guidelines (as in the case of the King Report in South Africa) depends largely
on the maturity of corporate governance in each specific country.
Nevertheless, in both situations, corporate governance aims to regulate the
same activities. The differentiating factor is the extent to which leverage is
available to ensure conformance to the proposed guidelines.
Currently there is no evidence of a universal set of corporate governance
‘guidelines’, ‘rules’, or ‘laws’ applicable to all countries and their organisations.
In fact, a number of corporate governance models exist. These can be divided
into: the Anglo-Saxon model (Dunlop, 1998:7) which is a combination of what
is adopted in the Americas and the United Kingdom; the German model that is
found in a number of European and Scandinavian countries; and the
Japanese model (Monks et al., 1995:276).
Although firmly established in
most developed countries, each country is still very much in a stage of internal
investigation to establish some form of ultimate practice.
2008
96
Project Governance for Capital Investments
Although it is not the purpose of this study to provide a critical review of the
differences between corporate governance practices in various countries (for
that reference is made to the extensive work by Mallin (2005), which provides
a thorough analysis of corporate governance developments in various
countries around the globe), the paragraphs below provide an overview of the
difference in approach by two countries, namely the USA and the Republic of
South Africa (RSA). The reasons for reviewing the two specific countries are:
•
The USA is considered to be a well developed country, while the RSA is
classified as a developing country. While most developed countries have
well-established corporate governance policies, the developing countries
still lag in the formulation of their policies. The RSA could be considered
as ‘more advanced’ in formalising corporate governance guidelines in the
developing world and therefore the country’s corporate governance
guidelines will be referred to extensively in the comparative discussion.
•
A secondary reason for selecting one country each from the developed
and developing world is that it is assumed that the different levels of
development and sociological needs might influence the approach taken
to formulate a ‘common’ corporate governance approach.
•
Lastly, the significance of looking at both approaches stems from the fact
that, in a globalised environment, the question of whose corporate
governance guidelines must be applied and what the mix should be,
could prove to be a distinguishing factor, especially when management
structures are assembled.
In the large capital project environment it is quite common that the developed
countries provide substantial funding, become partners / joint ventures, or
provide direct investment in these undertakings. The questions of governance,
in what format and level, could potentially have a positive or devastating
impact.
2008
97
Project Governance for Capital Investments
3.2.1.1
Corporate governance in the USA
Given recent corporate scandals and fraudulent financial reporting in the USA,
the Sarbanes Oxley Act of 2002 (the ‘Act’) concentrates mostly on financial
disclosure and reporting activities. Without analysing the detail, the indexed
content of the Act is given in Table 3.1 below. The purpose of the table is to
illustrate the strictness of financial and auditing principles that dominates the
intent of the Act. The format and contents of the Act are significant and a key
input to the eventual development of a common and generalisable project
governance model.
Table 3.1: Contents of Sarbanes Oxley Act of 2002
Title
Section
I
PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD
101
Establishment; administrative provisions
102
Registration of the Board
103
Auditing, quality control, and independence standards and rules
104
Inspections of registered public accounting firms
105
Investigations and disciplinary proceedings
106
Foreign public accounting firms
107
Commission oversight of the Board
108
Accounting standards
109
Funding
II
2008
Description
AUDITOR INDEPENDENCE
201
Services outside the scope of practice of auditors
202
Pre-approval requirements
203
Audit partner rotation
204
Auditor reports to audit committees
205
Conforming amendments
206
Conflicts of interest
207
Study of mandatory rotation of registered public accounting firms
208
Commission authority
98
Project Governance for Capital Investments
209
III
CORPORATE RESPONSIBILITY
301
Public company audit committees
302
Corporate responsibility for financial reports
303
Improper influents on conduct of audits
304
Forfeiture of certain bonuses and profits
305
Officer and director bars and penalties
306
Insider trades during pension fund blackout periods
307
Rules of professional responsibility for attorneys
308
Fair funds for investors
IV
ENHANCED FINANCIAL DISCLOSURES
401
Disclosures in periodic reports
402
Enhanced conflict of interest provisions
403
Disclosures of transactions involving management and principal
stockholders
404
Management assessment of internal controls
405
Exemption
406
Code of ethics for senior financial officers
407
Disclosure of audit committee financial expert
408
Enhanced review of periodic disclosures by issuers
409
Real time issuer disclosures
V
ANALYST CONFLICT OF INTEREST
501
VI
Treatment of securities analysts by registered securities associations
and national securities exchanges
COMMISSION RESOURCES AND AUTHORITY
601
Authorisation of appropriations
602
Appearance and practice before the Commission
603
Federal court authority to impose penny stock bars
604
Qualifications of associated persons of brokers and dealers
VII
2008
Considerations by appropriate State regulatory authorities
STUDIES AND REPORTS
701
GAO study and report regarding consolidation of public accounting
firms
702
Commission study and report regarding credit rating agencies
703
Study and report on violators and violations
99
Project Governance for Capital Investments
704
Study of enforcement actions
705
Study of investment banks
VIII
CORPORATE AND CRIMINAL FRAUD ACCOUNTABILITY
801
Short title
802
Criminal penalties for alternating documents
803
Debts non-dischargeable if incurred in violation of securities fraud
laws
804
Statute of limitations for securities fraud
805
806
807
IX
Review of Federal Sentencing Guidelines for obstruction of justice and
extensive criminal fraud
Protection for employees of publicly traded companies who provide
evidence of fraud
Criminal penalties for defrauding shareholders of publicly traded
companies
WHITE-COLLAR CRIME PENALTY ENHANCEMENTS
901
Short title
902
Attempts and conspiracies to commit criminal fraud offences
903
Criminal penalties for mail and wire fraud
904
905
906
X
Criminal penalties for violations of the Employee Retirement Income
Security Act of 1974
Amendment to sentencing guidelines relating to certain white-collar
offences
Corporate responsibility for financial reports
CORPORATE TAX RETURNS
1001
XI
Sense of the Senate regarding the signing of corporate tax returns by
chief executive officers
CORPORATE FRAUD AND ACCOUNTABILITY
1101
Short title
1102
Tampering with a record or otherwise impeding an official proceeding
1103
Temporary freeze authority for the Securities and Exchange
Commission
1104
Amendment to the Federal Sentencing Guidelines
1105
Authority of the Commission to prohibit persons from serving as
officers or directors
1106
Increased criminal penalties under Securities Exchange Act of 1934
1107
Retaliation against informants
The Act has brought, and will continue to bring about, significant change in
corporate governance, accounting and, ultimately, the financial markets - both
in the United States and internationally. The Act fundamentally changed how
2008
100
Project Governance for Capital Investments
audit committees, management and external auditors carry out their
respective responsibilities and interact with each other. The Act builds on
existing United States Securities and Exchange Commission (SEC) and US
stock exchange (i.e. the NYSE, AMEX and Nasdaq) requirements by
tightening restrictions, expanding disclosures and toughening penalties.
The most telling change may be that the Act represents a new era of public
regulation in the capital markets sector. Unlike in South Africa, the United
States Congress has concluded that public confidence can best be restored
through greater government involvement. This involvement has led to specific
requirements for affected parties with regard to corporate responsibilities,
auditor regulation and independence, and financial reporting, as well as
having enhanced (in some cases) new civil and criminal penalties for
corporate fraud.
The primary aim of the Act is to protect investors by improving the accuracy
and reliability of corporate financial and audit reporting and disclosures.
However, corporate governance in the developing environment had a different
onslaught, as explained in the next paragraph.
3.2.1.2
Corporate governance in South Africa
The initial King report (King, 1994), whilst also born out of a need to protect
investors, embraced an inclusive approach that looked, not only at the
financial and regulatory aspects of corporate governance, but advocated an
integrated approach in the interests of a wide range of stakeholders. The
report was released in 1994 and recognises that corporate governance initially
had to do with accountability and transparency of a corporation’s professional
management team and board of directors in terms of financial conduct and
reporting, but boldly hinted that governance models had to include the effect
of the corporation’s activities on its environment and on communities.
According to the report “... the concept of directors’ reports being directed
solely to shareholders is changing into a report to all stakeholders. Society
now expects greater accountability from companies in regard to their non2008
101
Project Governance for Capital Investments
financial affairs, for example in relation to their employees and the
environment.” (King, 1994:4). The revised King Report, namely King II (2002),
further developed the inclusiveness of the governance approach with specific
reference to the triple bottom-line, which included the creation of economic,
environmental and social value.
As opposed to the strong financial disclosure and auditing focus of the Act,
the King II Report (King, 2002) has a more social orientation, as illustrated in
the table below (Table 3.2). Again, the index of content of the King II Report is
used to highlight the essence of the content.
By merely looking at the two indexes, there are clearly differences in the
approach to corporate governance in the Act and King II. The differences
emanate from the respective country’s history and corporate experiences
during the preceding decade. In order to improve the understanding of the
differences between the two approaches, a direct comparative review is given
in the next section.
Table 3.2: Contents of the King II Report
Section
Chapter
1
2
2008
Description
BOARD OF DIRECTORS
1
Role and Function of the Board
2
Role and Function of the Chairperson
3
Role and Function of the Chief Executive Officer
4
Role of the Executive and Non-Executive Officer
5
Director Selection and Development
6
Board and Director Appraisal
7
Disqualification of Directors
8
Board Committees
9
The Business Judgement Rule
10
Role and Function of the Company Secretary
RISK MANAGEMENT
102
Project Governance for Capital Investments
1
Introduction and Definition
2
Responsibility for Risk Management
3
Assimilating Risk to the Control Environment
4
Application of Risk Management
3
INTERNAL AUDIT
1
Status of Internal Audit
2
Role and Function of Internal Audit
3
Scope of Internal Audit
4
INTEGRATED STABILITY REPORTING
1
Introduction and Scope of Review
2
Stakeholder Relations
3
Ethical Practices and Organisational Integrity
4
Safety, Health and the Environment (SHE)
5
Social and Transformation Issues (including Black Economic
Empowerment)
6
Human Capital
5
ACCOUNTING AND AUDITING
1
Auditing
2
Non-audit Services
3
Legal Backing for, and the Monitoring of, Compliance with Accounting
Standards
4
Information Technology
5
Accessibility of Financial Information
6
2008
COMPLIANCE AND ENFORCEMENT
1
Introduction
2
Legal Mechanisms
3
Enforcement of Existing Remedies
4
Principles of Disclosure
5
Role of the Media
6
Encouraging Shareowner Activism
7
The Role of Organised Business
8
Enforcement in other Jurisdictions
103
Project Governance for Capital Investments
3.2.1.3
Key differences between Sarbanes Oxley Act and King II
Throughout the 20th century, many countries experienced economic
downturns, failures, corporate scandals and even corporate collapses. This
necessitated
governments
developing
and
implementing
corporate
governance mechanisms, either as guidelines, codes or even as law. Mallin
(2005) provides a comprehensive review of the different approaches taken by
various countries in establishing governance principles that will address
general and country specific circumstances.
What is evident from corporate governance developments is the systematic
progression away from looking solely at concerns surrounding financial
reporting and disclosures to items that impact the larger society and
environment, the so-called ‘triple-bottom line’ (economic, social and
environmental). It is also this very aspect that proves to be the distinguishing
factor between the King II approach and the Act.
The following paragraphs provide a summary of the key differences between
the Act and King II as described by the Institute of Directors (IOD, 2002). A
comparison is also given in tabular format in Table 3.3 that compares specific
items listed.
3.2.1.3.1
Board of Directors and Audit Committee
King II, as opposed to the Act, covers a broader scope, ranging from
corporate governance to the responsibilities surrounding total corporate
citizenship.
The responsibility of corporate citizenship becomes the core
function of the board in the King II code.
A key driver behind the Act was the restoration of investor confidence and
therefore the focus on responsibilities lies more with the Audit Committee,
while simultaneously relying on existing SEC rules and USA stock exchange
requirements and proposals to address board responsibility, composition and
liability.
2008
104
Project Governance for Capital Investments
a)
Composition
King II provides fairly clear guidelines and stipulations regarding the
composition of the board. The code even states that it would be preferable to
have more non-executive executive members on the board, thereby ensuring
a broader societal view. Surprisingly enough, preference is also given to a
chairperson being independent and non-executive. Appointment to the board
should be transparent, with appropriate training and orientation given in
preparation for roles and responsibilities.
The Act provides hardly any requirements or stipulations regarding the
composition of the board.
b)
•
Responsibility
General Responsibility
King II pertinently states that the board is the focal point of accountability and
shall be held liable for the affairs of the organisation. It provides clear
guidelines regarding board responsibilities around strategy, monitoring and
evaluation, selection and use of technology, performance measures, risk
management and succession planning. The board should also establish a
formal charter that outlines their commitment and which is published in the
annual report.
•
Whistle Blowing Responsibility
Both King II and the Act incorporate requirements for confidential reporting
processes (‘whistle blowing’). The Act stipulates the introduction of this
practice more clearly under the Audit Committee’s oversight responsibility.
2008
105
Project Governance for Capital Investments
c)
Audit Committee to the Board of Directors
Both King II and the Act stipulate that the board of directors should appoint an
Audit Committee for effective internal control systems.
Whereas King II requires that the Audit Committee consist of a majority of
independent non-executive directors, the Act requires independence of all
members.
King II also requires a level of financial literacy for all the Audit Committee
members, whereas the Act stipulates the appointment of at least one financial
expert.
Both King II and the Act identifies the Audit Committee’s main areas of
responsibilities, which include the appointment of external auditors, reviewing
the accuracy of financial statements and alignment with the internal audit
function, as well overseeing the appropriate regulation regarding the
remuneration of external auditors.
3.2.1.3.2
Financial Reporting and Internal Control
Probably the most distinguishing area of difference between King II and the
Act can be found in the guidelines and prescriptions on financial reporting and
controls. Coupled with requirements for auditing, the Act provides for much
more stringent directives in terms of financial controls and the regular
reporting thereof in specific formats.
a)
Financial Reporting Responsibility
The King II approach to financial reporting aims to establish an environment
within which the board takes overall accountability for the financial affairs of
the organisation. This includes assurance that the Board reports the affairs of
the organisation accurately to all stakeholders. Apart from accurate
representation, specific responsibilities are prescribed in terms of:
2008
106
Project Governance for Capital Investments
•
External auditing
•
Internal controls and risk management
•
Applicable accounting standards
•
Adherence to the Code of Corporate Practice and Conduct, as
established and agreed upon by the board.
Supporting transparency and communication to stakeholders, King II also
recommends regular assessments and reviews regarding the operational
activities of the company, as well as indications of future direction and
strategy of the company.
The Act imposes a much more stringent approach to financial management
and holds the Chief Executive and Chief Financial Officer fully accountable for
the financial affairs of the company. The Act requires these officers to certify
that a company’s quarterly (for domestic US companies) and annual SEC
filing fully comply with the Exchange Act and that the information contained in
the reports fairly presents, in all material respects, the company’s financial
condition and results of operations.
Failure to comply with this certification carries direct criminal penalties of up to
20 years imprisonment and fines of up to US$ 5 million.
b)
Financial Disclosures
Supporting the stringent requirements surrounding financial control, the Act is
quite prescriptive regarding:
•
The disclosure of non-GAAP activities
•
The
reporting
of
off-balance
sheet
transactions,
arrangements,
obligations (including contingent obligations) and other relationships of
the issuer with unconsolidated entities or other persons that may have a
material current or future effect on specified elements of the issuer’s
financial statements.
2008
107
Project Governance for Capital Investments
c)
Internal Controls
Instead of detailing the requirements necessary for internal control, King II
adopted an over-arching approach under the banner of risk management.
Defining risk management in the context of the corporate environment, it
represents the process of identification and evaluation of actual and potential
risks as they pertain to a company, followed by a procedure for termination,
transfer, acceptance (tolerance) or mitigation of each risk. The reference to,
and use of risk management principles is formalised in the SAAS (South
African Auditing Standards) 400 “Risk Assessments and Internal Control”
(SAICA, 2002), issued by the South African Institute of Chartered
Accountants.
In comparison, the Act again allocates ultimate responsibility for internal
controls to the level of top management. Monitoring their compliance to the
directives, the CEO and CFO have to certify quarterly and annually that the
financial results represent a true reflection of the state of the company.
3.2.1.3.3
Accounting and Auditing
King II and the Act differ in their respective approaches to accounting and
auditing requirements. Whereas King II handles auditing requirements more
on a secondary level, the Act provides specific legislation regarding auditing
practices and reporting.
a)
Independence
Although King II strongly promotes the highest level of business conduct and
ethics for external auditors, it does not prevent or prohibit both consulting and
auditing services from the same company. However, it does require the Audit
Committee to provide principles for recommending the use of the external
auditors for non-audit services, such as management consultancy and
corporate finance services.
2008
108
Project Governance for Capital Investments
The Act‘s independence requirements are more expansive and specific than
those in King II. The Act further expands existing SEC and American Institute
of Certified Public Accountants (the ‘AICPA’) independence rules by
prohibiting the external auditor from:
i)
functioning in the role of management
ii)
auditing his or her own work
iii)
serving in an advocacy role for the audit client, and
iv)
limit the number of years an audit firm is eligible to audit the same
company’s results.
b)
Interaction with Companies
Apart from specifying the formulation and adherence to an internal audit
charter, King II adopts fairly open, but mandatory guidelines to inter-company
communication. The Act, on the other hand, specifically legislates the manner
of communication between companies, focusing on misrepresentation and
manipulative and fraudulent statements regarding the state of the company.
The Act also specifies the nature of the communication between external
auditors and audit committees.
The Act does not contain specific provisions affecting the internal audit
function in a company. However, a company’s external auditor is precluded
from functioning in the capacity of internal audit function, or even in a partially
outsourced capacity. The internal and external audit function should also
establish formal communication lines.
c)
New Attestation Report
Unlike King II, the Act requires the external auditor to issue an attestation
report on management‘s internal control report.
Apart from providing a
thorough review over the internal control practices of the organisation, the
attestation report should also report on material weaknesses in internal control
and any material non-compliance.
2008
109
Project Governance for Capital Investments
d)
Disclosure
Both King II and the Act require full disclosures on the amounts paid to the
external auditor for non-audit services, with a detailed description in the notes
to the annual financial statements of the nature thereof, together with the
amounts paid for each of the services described. Additionally, the Act requires
disclosure of fees paid to a company’s principal external auditor for the two
most recent years, segregated by audit, non-audit, tax and other services, as
well as a description of the nature of the services.
3.2.1.3.4
Organisational Ethics and Remuneration
Both King II and the Act seek to influence individual ethical behaviour through
requirements surrounding codes of ethics and compensation. Whereas the
Act elaborates extensively on financial control and auditing, King II (and, in
general, governance approaches from the developing world) focuses
additional attention on safety, health, environment, social and socio-economic
responsibilities.
a)
Code of Ethics
Both King II and the Act, stipulate that an organisation should demonstrate its
commitment to ethical behaviour by codifying its standards in a code of ethics.
b)
Compensation
The establishment of a Remuneration Committee, consisting almost entirely of
non-executive directors, is strongly proposed. Membership of this committee
should be transparent and disclosed in the annual report. Companies should
also provide full disclosure of director remuneration on an individual basis in
their annual report, providing details of earnings, share options, restraint
payments and all other benefits. King II further supports performance-related
elements of remuneration.
2008
110
Project Governance for Capital Investments
Legislation in the Act goes further, imposing direct accountability on the CEO
and CFO. Firstly, the Act prohibits the arrangement or renewal of credit in the
form of a personal loan to or for any director or executive officer or their
immediate family. Secondly, the Act requires that if, as a result of misconduct,
a company is required to make an accounting restatement due to material
non-compliance with the financial reporting requirements, the company’s CEO
and the CFO must reimburse the company for calculated amounts from their
personal remuneration.
c)
Integrated Sustainability
Again, as opposed to the strong financial, audit and transparency approach
contained in the Act, King II emphasises the importance and responsibility of
companies to the environments they are operating in. This includes the social
and natural components of society. The argument is that unless companies
look after their suppliers, customers, employees and the environment in which
they operate, shareholder value is likely to suffer any way. This means that a
well-run board of directors will have to deal with these interests to ensure
long-term corporate health and therefore shareholder value.
King II adopted an approach from a single bottom line to a triple bottom line.
The triple bottom line embraces economic, environmental (including health
and safety) and social aspects of a company’s activities.
•
Economic aspects
King II warns that it must be constantly borne in mind that entrepreneurship
and enterprise are some of the most important factors that drive businesses.
Entrepreneurs that take risks and initiatives drive economies.
If the
shareholder cannot earn an acceptable return on his investment, he will not
invest, and there will be no growth in commercial or industrial activity. Without
profitability, there would be no enduring interest in a corporation. If there were
no investors, none of the other stakeholders would have an enduring interest
in the corporation either.
2008
111
Project Governance for Capital Investments
Clearly, the economic side of corporate governance can therefore not be
completely neglected, nor should one allow the other interests of corporate
governance to overshadow the financial performance of the corporation, as
this would negate the necessity for any other stakeholders’ interest, or the
protection thereof through corporate governance. A successful economy is
dependant on successful companies that operate in that economy.
The
corporate governance system should therefore avoid control that can stifle an
enterprise. A participative corporate governance system and companies with
integrity is needed.
Sheridan and Kendall (1992:27-51) support this view by stressing the
importance of the fact that businesses have to be successful to survive and
grow. Governance, like any other aspect of business, has to be considered in
the context of its contribution to business success. While the board’s function
is to act as an agent of the owners (shareholders), and as trustees of their
interests, this suggested participative corporate governance promotes the
interest of a range of other stakeholders, outside of the primary business
drive, namely wealth maximisation. This ‘softer’ side of corporate governance
is summarised as follows (Sheridan et al., 1992:27):
•
Fulfil the long-term strategic goal of the owners (wealth maximisation),
•
Consider and care for the interests of employees, past, present and
future, which we take to comprise the whole life-cycle including planning
future needs, recruitment, training, working environment, severance and
retirement procedures, through to looking after pensioners.
•
Take account of the needs of the environment and the local community,
both in terms of the physical effects of the company’s operations on the
surroundings and the economic and cultural interaction with the local
population.
•
Work to maintain excellent relations with both customers and suppliers in
terms of matters such as quality of service provided, considerate
ordering and account settlement procedures.
•
Maintain proper compliance with all the applicable legal and regulatory
requirements under which the company is carrying out its activities.
2008
112
Project Governance for Capital Investments
•
Safety, Health and Environmental (SHE) considerations
Shareholders should not only feel obliged and able to cross swords with
management who they believe are acting in a way detrimental to the profitable
conduct of the business, but should be as concerned about environmental
issues, learning from other companies’ mistakes and strategies, and providing
training to communities in which the company operates. King II highlights that
the environmental aspect of corporate governance includes the effect on the
environment of the product or service produced by the company. An article in
an Asian Development Bank Review publication (2001) shows that the
separation of economic growth and environmental concerns has come at a
high cost to the environment.
It is estimated that by 2020 half of Asia’s
population is likely to live in the cities, further straining an already inadequate
infrastructure for water supply, housing, and sanitation. The poor are often
most directly dependant upon forests, fisheries and other natural resources
threatened by depletion and degradation. Some of the reasons cited for this
phenomenon are excessive reliance on centralised, top-down approaches and
inadequate participation of civil societies in environmental management.
What does this have to do with corporate governance?
The Asian
Development Bank article illustrates that a biased approach to the primary
objective of a corporation, namely wealth maximisation, can have a
detrimental effect on the environment in which it operates, with a knock-on
effect on the sustainability of the corporation. Corporate governance should
therefore also adopt a balanced approach, taking into account the economic
performance and environmental constraints within which the corporation
operates to ensure sustainability of the company’s business. King II
(2002:123) supports this view by providing practical recommendations for
safety, health and environment (SHE). These include:
•
Business processes and SHE management principles should be
integrated.
•
Environmental corporate governance must reflect current South African
law by the application of the “Best Practicable Environmental Option”
standard (defined as that option that has the most benefit, or causes the
least damage, to the environment at a cost acceptable to society)
2008
113
Project Governance for Capital Investments
Corporate governance should reflect a committed effort to reduce
workplace accidents, fatalities and occupational health and safety related
incidents. There should also be regular measurement against an ongoing
improvement objective, which should be disclosed to stakeholders.
c) Social
Employees, communities, consumer and public interest groups are raising
concerns about the performance and impact of corporations on employment
practices, pollution, genetic engineering, product safety, essential public
services and many other matters. The most serious concerns tend to be over
corporate practices in poorer countries, where governance and financial
constraints have made it more difficult for legal, environmental, health and
safety standards to match those in developed countries.
Corporate governance’s higher aim is to provide an international framework
on corporate accountability and liability. This would secure the accountability
of corporations to citizens and communities in today's globalised economy by
establishing:
•
Rights for citizens and communities affected by corporate activities;
•
Duties on corporations with respect to social and environmental matters;
and
•
Rules to ensure high standards of behaviour wherever corporations
operate.
The approach goes beyond voluntary corporate responsibility initiatives to
establish corporate accountability to stakeholder citizens as a legal right. It
seeks to help close the democratic deficit created by corporate globalisation
by underlying the principles of rights, democracy and equity demanded by
communities protesting against corporate globalisation.
South African corporations have a duty to support transformation issues such
as black economic empowerment (BEE) and to involve local communities in
their activities to support job creation. One of the task teams established to
review corporate governance for King II focused on Integrated Sustainability
2008
114
Project Governance for Capital Investments
Reporting. They analysed a wide range of complex areas of reporting of a
non-financial nature, including ethics and societal and transformation issues,
including BEE. While some of these issues have been addressed in recent
legislation (Employment Equity Act, Act No. 55 of 1998) as referred to in King
II (2002:9), this currently only affects larger companies.
McGregor (2000:10) relates that Corporate Governance touches us all: “We
buy gas from a filling station owned by a global company. The food we buy is
imported from distant countries and continents … corporate governance
impacts on the quality of lives not only of shareholders, but employees and
those communities impacted by key corporate decisions.” She continues to
paint a picture in which she highlights the social or human side of governance
through a definition of corporate governance:
“Governance is the process whereby people in power make decisions that
create, destroy or maintain social systems, structures and processes.”
She regards the corporate governor (i.e. board of directors) as a significant
part of the fabric of our society, agents for change and guardians of existing
ways of working. This is often forgotten in the business of making money and
responding to a competitive market.
A few corporations make a virtue of internalising costs, believing this voluntary
'corporate social responsibility' enhances their brand and provides a
competitive edge. Such a strategy works for corporations that have become
relatively accountable to their customers, but it works almost as well for some
as a marketing hype veneer that disguises a grim reality.
Governments have supported voluntary corporate social responsibility and
some even have ministers with duties to promote it. However, such voluntary
action is not common to all companies. Unless all corporations are made
equally accountable for their environmental and social impact there remains
little incentive for a general improvement in behaviour. What is more, those
corporations that want to become more socially responsible are being held
2008
115
Project Governance for Capital Investments
back by competitors who can undercut them by continuing to externalise costs
and by demonstrating no responsibility. Substituting regulation with voluntary
initiatives, has therefore failed to deliver sufficient progress in practice to date.
King II reacts to this dilemma by providing the following recommendations for
incorporating social aspects into governance:
•
Companies should value diversity of approach, values and the
contribution that women and black people bring to the table and should
develop mechanisms to positively reinforce the richness of diversity.
•
Social investment prioritisation and spending, as well as procurement
practices, should take cognisance of the need for BEE and, in particular,
the need to empower women.
•
Companies should disclose the nature of policies and practices in place
to promote equal opportunities for the previously disadvantaged, in terms
of them realising their full potential and reaching executive levels in the
company.
•
The company’s policy on investment of corporate funds should be
disclosed. In particular, pension funds and institutional investors, both in
the private and public sectors, should indicate in a Statement of
Investment Principles and Policies or equivalent document the extent to
which they take into account socially responsible investment criteria in
their investment decisions.
In an extension to the above, King II also provides specific recommendations
regarding the development of human capital according to the following
guidelines:
•
Companies should disclose the criteria by which they propose to
measure human capital development and report accordingly on their
performance in terms of such criteria.
•
Business practice should reflect requirements of human capital
development in areas such as the number of staff, with a particular focus
on demographics (race, gender and people with disabilities), age,
corporate training initiatives, employee development and financial
investment committed.
2008
116
Project Governance for Capital Investments
The above paragraphs outline the emphasis of King II on corporate
responsibilities beyond financial management. This emphasis is typical of a
developing environment and, since large projects often have developed and
developing elements and stakeholders, will be of key importance when
identifying the key components of a project governance model.
Table 3.3 below summarises the above descriptions and two approaches to
corporate governance.
King II and the Act have introduced new and varied corporate governance
requirements. Some focus on increased responsibility, whereas others focus
on increased accountability.
What is of importance though is that while different institutional investors have
their individual agendas domestically and abroad, certain key corporate issues
are found to be of common concern – and that it is in the court of public
opinion where a company’s corporate governance practices, and the business
results they produce, will ultimately be judged. With this view, King II
summarises the spirit of corporate governance practise as follows:
•
Discipline – corporate discipline is a commitment by a company’s senior
management to adhere to behaviour that is universally recognised and
accepted to be correct and proper.
•
Transparency – the ease with which an outsider is able to make
meaningful analysis of a company’s actions, economic fundamentals and
the non-financial aspects pertinent to that business.
•
Independence – the extent to which mechanisms have been put in place
to minimise or avoid potential conflicts of interest that may exist, such as
dominance by a strong chief executive or large shareowner.
•
Accountability – individuals or groups in a company, who make decisions
and take action on specific issues, need to be accountable for their
decisions and actions.
2008
117
Project Governance for Capital Investments
•
Responsibility – this pertains to behaviour that allows for corrective
action and for penalising mismanagement.
The board must act
responsively to and with responsibility to all the stakeholders.
•
Fairness – the systems that exist in a company must be balanced in
taking into account all those that have an interest in the company and its
future.
•
Social responsibility – a well-managed company should be aware of and
respond to social issues, placing a high priority on ethical standards.
Table 3.3: Summarised comparison between King II and the Act
Board of Directors and Audit Committee
King II
Sarbanes Oxley
Composition
•
•
Sufficient size
Comprised of executive and
non-executive members
•
Preferably a majority of nonexecutives, of whom a sufficient
number should be independent
•
Chairperson should be
independent
•
Not separately
addressed
Responsibility
•
Board has ultimate
accountability for the affairs of the
company
•
Board should adopt a formal
charter describing its
responsibility, which should be
disclosed annually
•
Audit Committee to
Board of Directors
•
•
Majority must be independent
Majority of Audit Committee
members must be financially
literate
•
Various defined
responsibilities
•
Not separately
addressed
•
Whistle blowing
responsibility is assigned to
the Audit Committee
All members must be
independent
•
Must include at least
one financial expert
•
Various defined
responsibilities
Financial Reporting and Internal Control
King II
Financial Reporting
Responsibility
•
Financial Disclosures
•
2008
Board must report certain
items annually regarding the
preparation of financial statements
and the use of effective internal
controls
No specific requirements
Sarbanes Oxley
Quarterly certification by
the CEO and CFO regarding
compliance with the
Exchange Act
•
Prohibition of certain
non-GAAP information
•
Required disclosures in
•
118
Project Governance for Capital Investments
quarterly and annual reports
of all material off-balance
sheet transactions and other
defined relationships
•
All material correcting
adjustments to the financial
statements must be made
Internal Controls
Internal control considered
part of the risk management
process
•
Board must implement and
maintain generally recognized risk
management and internal control
models
•
Disclosures must be made
about the risk management
process
•
Requirement for
quarterly certification by the
CEO and CFO regarding
their responsibility over
disclosure controls and
procedures
•
An annual internal
control report prepared by
management to be included
in annual filings with the
SEC
•
Accounting and Auditing
King II
Sarbanes Oxley
Independence
•
External auditors should
observe the highest level of
business and professional ethics
and should be objective and aware
of their accountability to
shareholders
•
Prohibits defined
activities by the external
auditor
•
Stricter partner rotation
rules, limits on employment
of former external auditors,
and prohibition of fees
earned by the audit partner
for certain non-audit
services
Interaction with
Companies
•
Requires an effective internal
audit function with a formal internal
audit charter
•
New Attestation
Report
•
Not separately addressed
•
Disclosure
•
Requires separate disclosure
of the amounts paid to the external
auditor for non-audit services
together with a detailed description
of the nature of services
•
Requires mandatory
communication between the
external auditor and the
audit committee
External auditor must
issue an attestation report
on management’s internal
control report
Requires disclosure of
fees paid to a company’s
principal external auditor for
the two most recent years
with a description of the
nature of services
Organisational Ethics and Remuneration
King II
Code of Ethics
2008
Standards of ethical behaviour
should be codified in a code of
ethics
•
Adherence to this code should
•
Sarbanes Oxley
Must disclose whether a
code of ethics applicable to
senior management has
been adopted
•
119
Project Governance for Capital Investments
be disclosed
•
Code should be made
publicly available and any
changes to the code or
waivers from the code must
be disclosed
Compensation
•
Performance-related elements
of compensation should represent
a substantial portion of the total
compensation package
•
Vesting periods, re-pricing of
options and other pertinent
information relating to granting of
options should be approved by
shareholders
•
Makes it unlawful for a
company to extend personal
loans to directors or
executive officers
•
Requires reimbursement
to the company by the CFO
and CEO of certain
compensation received
when financial statements
are restated
Integrated
Sustainability
•
Included in business
processes
•
Economic
•
SHE
•
Social
•
Requires detail regarding
inclusion of all local labour and
stakeholders
•
Not separately
addressed
Not separately
addressed
Source: IOD, 2002, PriceWaterhouseCoopers
Even though philosophical, the above could serve as a moral test for
corporate practices.
Since the 1990s, the formalisation of corporate governance has created much
debate, exploration and research in terms of perfect management practice.
With the current models available, academics and practitioners continue to
explore shortcomings and best practices to be incorporated in new revisions
of the acts and guidelines. The following paragraphs explore some of the
latest thinking in the field of corporate governance and provide a brief glance
into the future in terms of what may be expected in model updates. By
considering the latest developments, this research attempts to develop a
model that will be relevant to its time and provide an opportunity to incorporate
the most modern thinking available.
2008
120
Project Governance for Capital Investments
3.3
Latest developments in corporate governance
It could be argued that corporate governance is a globally accepted concept
and that debate around the topic focuses more on content and application
rather than on validity. Gillibrand (2004:5) states that corporate governance
guidelines produced by the Organisation for Economic Co-operation and
Development (OECD) increase rather than decrease pressure on countries to
develop and implement corporate governance guidelines and standards. They
strongly encourage the application of good corporate governance as a
precondition for international loans to governments for financial sector and
other structural reforms as well as equity investment in, and bank loans to,
larger companies. Although the pressure is currently on listed companies ‘to
comply or explain’ their corporate governance principles, this requirement is
likely to be extended not only to all listed companies, but also to other
privately and publicly owned companies and organisations that want to use
‘other people’s money’ (including tax payers’) as equity, loans or bonds.
In support of the approach taken in this research, in terms of which a model
from each of the developed and developing worlds were studied, the
Commonwealth Secretariat convened a group to examine the scope of
corporate governance for development and to identify areas where the OEDC
principles should be revised to better accommodate the concerns of
developing countries as well as emerging markets. In their study, the
Commonwealth group identified various areas to be addressed in a
developing environment and a summary of this is provided below (Gillibrand,
2004:10-11):
•
Geographical expansion to developing countries:
An immediate need was identified to expand the concept to especially
pan-African and pan-Caribbean forums. However, the adoption of the
principles has been slow since true evidence is still required that
positively links good corporate governance with poverty elevation. Thus,
the changes to initially stipulated principles in a developed environment
2008
121
Project Governance for Capital Investments
had to incorporate local developmental needs and clearly demonstrate
not only financial accountability but also other parameters such as:
•
•
Investment for growth and for employment creation
•
Competitiveness for the global market
•
Corporate environmental and social responsibility
•
Increase in public sector agency efficiency.
Sectorial as well as geographical expansion of corporate governance:
Up until 2001, the conventional approach to corporate governance
regarded this as irrelevant for state-owned enterprises, family owned
corporations, public service boards, cooperatives, small and medium
enterprises and even the banking sector. According to Gillibrand
(2004:11) one of the main reasons was theoretical in that the concepts of
corporate governance were based on the principle-agent relationship,
which was considered to apply to joint stock companies. Even though
this limiting and constraining approach resulted in initial confinement of
the concept of corporate governance, extension into other sectors and
organisational formats, from private to public, has accelerated since
2001. Again, the realisation of the wider development and application of
the principles of corporate governance supports this investigation into its
application to the field of project management.
•
Convergence and segmentation of different aspects of corporate
governance:
Linked to the previous paragraph’s plea for sectorial extension of
corporate governance is the convergence of different core aspects of
governance, which have been running in parallel for the past decade, but
now seem to be flowing together into a comprehensive approach to
corporate governance. In the past, there was a tendency for segregation
between corporate governance, corporate social responsibility, corporate
environmental
responsibility,
corporate
citizenship
and
director
professionalism. Again, because of the initial principal-agent relationship
approach, focus was mostly on protecting shareholder value through
procedural and organisation aspects, bureaucratic structures, systems,
2008
122
Project Governance for Capital Investments
audits, codes and ‘ticking boxes’. However, the emerging modern
‘inclusive’ approach refers to the responsibility of corporate citizenship
and highlights the other end of the spectrum. The proponents of
corporate social and environmental responsibility consistently talk in
terms of stakeholders, while some of the stricter exponents of corporate
governance deny that there was any validity whatsoever in the concepts
of ‘stakeholder’, and argued that it served to weaken the essential
principle of corporate accountability to shareholders.
The shareholder versus stakeholder debate is active and in a state of
flux. Letza, Sun and Kirkbride (2004) provide valuable insight into this
debate and its status in mid-2004. Although the general observation is
that there is a visible recognition by most organisations to include
stakeholders into their governance models (Anglo-American style), there
is also notable evidence of countries moving from an inclusive
stakeholder model to a more exclusive shareholder model, especially in
Germany and Japan (European-Asian style).
Even though both
shareholder and stakeholder perspectives claim superiority of their
models, reality has shown a dynamic shift, with both models becoming
increasingly mutually attractive in various aspects.
The above paragraphs highlight the fairly advanced state of corporate
governance debate and development. The foundational principles are well
established on the basis of responsible and accountable actions by those in
power. It is also believed that the current status supports the further
development and application of governance concepts in other forms of
managerial structures, such as project teams and their management. The
following section explains some of the inherent principles and evident
approaches to be taken into consideration when developing a project
governance model.
2008
123
Project Governance for Capital Investments
3.4
Approaches to the development of a project governance
framework
Although it is not the purpose of this research to investigate the validity of
each argument, it is believed that a review regarding current thinking and
postulations on corporate governance is an important aspect in developing a
project governance model. Flexibility towards the development process is
required,
especially
in
a
project
environment
where
the
static
conceptualisation of shareholding and stakeholding is less compatible with the
fluidity and diversity of practical reality. As explained by Letza et al.
(2004:257), the current dichotomised and static theoretical approach used in
corporate governance research, which presupposes two extreme and
opposing ideal models (static versus process driven), cannot fully explain the
complexity and heterogeneity of corporate reality. The further development
and research in corporate governance, as well as subsequent development of
complimentary models for other types of organisations (i.e. temporary project
organisation), calls for an inventive and flexible approach. According to Letza
et al. (2004:258), such an approach should comprise the following:
•
Process rather than static approach:
This approach explains and allows for the temporary, transient and
emergent patterns of corporate governance on a historical and
contextual interface in any society. Corporate governance is completely
changeable and transformable and there is no permanent or universal
principle that covers all societies, cultures and business situations. It
acknowledges that corporate governance models around the globe have
developed from their own unique cultural, historical and social
circumstances. It also acknowledges that each model will continue to
evolve. For example actors in the Anglo-American and GermanJapanese governance environments will learn from each other, each
taking aspects from the other’s model to improve their position in global
competitiveness and transparency.
2008
124
Project Governance for Capital Investments
•
A balanced approach:
This approach assumes that no extreme model can exist and function
effectively, such as a pure shareholding or pure stakeholding model can
exist. An organisation is never a purely private or purely public entity. It
does not consist purely of physical assets, but also of human beings,
shareholders and stakeholders.
•
A relational approach:
In order to learn, business relationships must consider corporate
relationships and social interactions. Thus, shareholder interest is not
independent of stakeholder actions and vice versa. An organisation is
not independent of its constituents. Separating shareholder and
stakeholder interests comes down to over simplification of a social
reality.
•
A pluralist approach:
Critical to this approach is the recognition that corporate governance is
not only conditioned to the economic logic of economic rationality and
efficiency, but also shaped and influenced by politics, ideologies,
philosophies, legal systems, social conventions, cultures, modes of
thought and methodologies. A purely economic and financial analysis of
corporate governance is too narrow (Turnbull, 1997:180).
•
A dynamic and flexible approach:
Having to continually weigh and adjust the methods of governing in
practice, an ideal model cannot be fixed as a ‘once-and-forever’ solution.
According to Hood and Jones (1996), it is a principle of design and
management of institutions through explicitly juggling rival viewpoints in a
constant process of dynamic tension with no pre-set equilibrium.
•
An enlightening approach:
Challenge and transcend habitual, inertial, static and stagnant ways of
thinking about corporate governance. As mentioned by Morgan (1997),
people are easily trapped by favoured ways of thinking that serve
2008
125
Project Governance for Capital Investments
specific sets of interests and consequently our conventional modes of
thought may in turn bind and control our views. We need to think outside
of the current polarised framework of models. We need to truly
understand what corporate reality is, how and why we have constructed
it, both collectively in history and in different contexts, and what trends
and patterns could most likely emerge in the uncertain future.
In line with the above approaches, some attempts have been made to
introduce governance principles into the project management field.
3.5
Introducing governance into the project management field
Supporting the general notion that governance principles should be extended
to other fields of management, and especially to project management, some
work has been published on the topic in recent years. The work, mostly from
study groups and individual authors, covers topics such as the governance of
project management, from the APM in the United Kingdom (APM, 2004),
programme governance (Reiss, Anthony, Chapman, Leigh, Pyne and Rayner,
2006) and project governance (Renz, 2007).
Although the document produced by the APM (2004) focuses more on the
practice of project management as a management discipline, rather than on
describing governance as a strategic function, it does make comparisons
between the principles contained in the document and corporate governance
guidelines. However, the main focus remains with the responsibilities of the
acting project manager.
Reis et al. (2006) provide a more strategic approach to the application of
governance principles to projects. Although only seen as a small subset of
programme management, some important documents are listed and deemed
important for programme governance. These documents include strategy
documents, the programme brief, the business case, highlight and exception
reports as well as the risk register. Reis et al. (2006) also make an attempt to
illustrate the alignment between corporate and programme governance by
2008
126
Project Governance for Capital Investments
introducing a comparative table. A reproduction of the comparative table is
given below in Table 3.4 (Programme governance versus corporate
governance). In compiling the table, only generic corporate governance
clauses were referred to.
Focusing on non-profit organisations, Renz (2007) describes the function of
project governance as bridging the gap between corporate governance at the
strategic level and project management at the operational level. Instead of
addressing the conditions required for a conducive environment within which
projects could be managed Renz (2007), proposes a project governance
model that aligns project activities with strategic objectives.
Table 3.4: Programme governance versus corporate governance
Issue
Corporate Governance
Programme Governance
Structure of the
board
The role of chairman and chief
executive should be divided.
Management of
the board
There should be:
a. regular board meetings
b. clear division of responsibility
between members, with no
single director being allowed
unfettered discretion to make
decisions
c. a formal written schedule of
matters for approval by the
board.
Directors should initially receive
instructions
regarding
their
responsibilities following their
appointment
and
additional
instructions and from time to
time.
Boards
should
establish
nomination committees.
The programme board should have a
balanced
structure,
including
representation from the key divisions /
stakeholders being affected.
There should be:
a. regularly
programmed board
meetings
b. clear
delineation
of
responsibilities of the programme
board
c. regular agenda items for review,
including
projects
in
the
programme.
Board
competence
Board
membership
Remuneration
A remuneration committee is
required and its members are
required to have no business or
other relationship with the
company that could affect the
independence
of
their
judgement.
Financial
controls
The board has a duty to present
an assessment of the company’s
financial position.
2008
Programme directors and other
members of the programme board
who have no programme or project
experience should be trained before
taking up their role.
The make-up of the programme board
should provide a balanced view of key
stakeholders.
Where the programme director or
programme manager has a personal
interest, or their company has an
interest in one or more of the projects,
then this must be declared. The
programme director or programme
manager should withdraw from any
discussion on the project.
The programme board should ensure
the production of up-to-date financial
and management accounts.
127
Project Governance for Capital Investments
Other
internal
controls
Directors of listed companies
must:
a. conduct a review at least
once a year and report to
shareholders
on
the
effectiveness
of
the
company’s system of internal
control
b. where there is no formal
internal
control
system,
annually review the situation
and
report
to
the
shareholders why the board
does not consider such a
system
necessary
and
outline other procedures in
place to provide information
to the board.
The
programme
management
arrangements should include internal
controls for:
a. financial
approval
and
management
b. benefit management
c. risk management
d. planning and tracking
e. change control
f. documentation management
g. reporting
h. programme assurance, including
checkpoints and audits.
Source: Reis et al. (2006)
The model proposed includes such main components such as:
•
Systems management
•
Mission management
•
Integrity management
•
Extended stakeholder management
•
Risk management
•
Audit management
Although some components, such as extended stakeholder management and
audit management, are strongly linked to corporate governance principles, the
item’s components relate to system breakdown and overall project scope
definition. Renz (2007) also proposes a definition of project governance,
namely:
Project governance is a process-orientated system by which projects are
strategically directed, integratively managed and holistically controlled, in an
entrepreneurial and ethically reflected way, appropriate to the singular, timewise limited, interdisciplinary and complex context of projects.
The project governance model proposed is largely based on the author’s
rational arguments and not on empirical research.
2008
128
Project Governance for Capital Investments
3.6
Summary
The question of governance is found to be inherent to the evolution of the
corporation. Through the centuries, the church, state, individuals and
companies investigated and experimented in various ways to build
cooperation and collaboration among parties engaging in trade and business.
The relationships varied in level of formality, from personal agreements to
fixed and formal contracts governed by the power of the church and / or
legislation. The modern, capitalist society brought about behaviour that tends
to be self-centred, profiteering and even greedy, resulting in various forms of
misconduct on a grand scale. With the enormous pressure from shareholders
on cooperatives to be profitable and grow on an annual basis, as well as
major incentives for management if they achieve their targets, the
environment became fertile for new forms of mismanagement and
misrepresentation of the reality. This tendency has led to great financial
losses for shareholders and investors as well social and environmental misery
during the past three decades.
To address this negative trend, various governments embarked on a program
to improve the control of corporate activities. This resulted in the formalisation
of corporate governance in various formats according to each country’s
needs. In the developed world, corporate governance models were focused
predominantly on financial accountability, transparency and reporting. The
most well known example is that of the Sarbanes-Oxley Act in the USA, where
strong legislation forces companies to be extremely transparent, especially in
terms of board composition and financial and accounting conduct. The main
objective of the Act is to protect shareholders and investors in joint stock
companies.
As opposed to the developed world, the developing world provides guidelines
and not necessarily legislation that focuses on social and environmental
issues as well. The developing world’s approach is more inclusive and moves
beyond shareholders to stakeholder involvement. The different approaches
become clear when comparing the two models, one from the developed world
2008
129
Project Governance for Capital Investments
(in the Sarbanes-Oxley Act) and the other from the developing world (in the
form of the King II Report in South Africa).
The two schools of thought, that of shareholder versus stakeholder interest, is
quite evident in corporate governance literature, with a clear observation that
the two seemingly opposing approaches are converging in some developed
countries, especially in Europe and Asia, which are becoming more
stakeholder orientated and developing countries realising the importance of
protecting shareholder wealth.
Although fairly mature, the further improvement of corporate governance
models requires different approaches for further enhancement. These
approaches might well be a mixture of processes, balanced, relational,
pluralist, dynamic and enlightening.
The historical development of corporate governance, establishment and
formalisation of existing models from the highest, most influential echelons of
society and the vibrant, challenging debate on what or who should be included
and excluded from governance practices, provides a solid yet flexible base
from which to develop the concept further into other forms of managerial
arrangements such as project management. It is believed that the time is
more than ever opportune to investigate, develop and formalise, as far as
possible, a project governance model that is globally applicable and
incorporates the cross-country, cross-culture, stakeholder and shareholder
approaches and unique nature of the temporary project organisation.
The following chapter discusses the research approach and design
considered in the establishment of such a project governance framework.
2008
130
Project Governance for Capital Investments
Chapter 4: Research Design
The literature review revealed that the principles of project performance,
corporate governance, LCPs and institutional developments are fairly well
documented. Many research studies into project performance have been
done, while research in the field of corporate governance is currently more
related theory building and qualitative analysis. The current state of corporate
governance allows for some structure and a basic framework from which the
different regional models are derived. The models are mostly presented as
guidelines and laws influencing different countries’ specific economic and
social emphasis. These models can serve as a basis from which to develop a
project governance framework.
Few studies exist with respect to the management of LCPs, while the
fundamental understanding of the functioning, dynamics and characteristics of
major projects still need thorough investigation, research and active debate.
However, with respect to this study, it is believed that the contextual
frameworks exist in terms of corporate governance models, entrepreneurial,
rational and governance systems that will lead to the development of a
questionnaire that will stimulate discussion among seasoned project
sponsors, project managers, academics and other major stakeholders with
regard to the establishment of a project governance framework. However, it
was clear from the outset that the research in itself would be an exploratory
process with the review and confirmation of the research approach to be
reviewed, discussed and adjusted as the results unfold.
4.1
Developing the research strategy
The uncertainty and immaturity of the concept of project governance became
evident through the literature review and various informal discussions with
academics and project practitioners. Although project governance is a popular
term in modern project management language, it was not clear whether the
2008
131
Project Governance for Capital Investments
users of the term commonly refer to project control, steering committee
functions, project management in its entirety or to liability clauses in contracts.
Given these fundamental differences in approach and a low level of mutual
understanding of the concept of project governance, the research method and
approach lends itself ideally to an exploratory study as well as the
accumulation and categorisation of expert opinions. This resulted in the
investigation of the Delphi technique as the research approach and strategy to
define project governance. The results of the second round of the Delphi
survey would determine what route to take towards a project governance
framework (Figure 4.1 - Research Strategy). Options included a third round of
the Delphi survey, the structuring and development of a concept model for
testing against a large sample of respondents (quantitative) or various case
studies.
Literature Study –
Concept Project
Governance
Framework
Delphi
Round 1
Delphi
Round 2
Additional
Delphi
Round
No
Case Studies
(based on
updated
Concept Project
Governance
Framework)
Results
Sufficient?
Yes
Update Concept
Project Governance
Framework
Project
Governance
Model
Or
Quantitative
Survey
Figure 4.1: Research strategy
A critical decision had to be made after the Delphi studies. The decision
centred around the verification part of the study via case studies or
quantitative surveys. The results from the Delphi study would determine the
possible option. If it was found that the input from experts during the Delphi
2008
132
Project Governance for Capital Investments
were sufficient to compile a fairly robust Concept Project Governance
Framework, the testing of the framework would proceed towards case studies.
However, if it seemed that the refinement of the Concept Project Governance
Framework could be improved via a survey with input from general project
workers and academia, then this quantitative route would be followed.
The Delphi technique is a qualitative research method and therefore criticised
by many a seasonal researcher as not being empirically verifiable. In order to
better understand the Delphi technique as research method, and its
applicability to this research, a fairly extensive literature review was done on
the technique. The objectives of the literature review were to:
•
Obtain a better understanding of the Delphi technique as a research
method,
•
Obtain insight into the advantages and criticism of the Delphi technique,
and
•
Map the research process for this study.
The following paragraphs provide an overview of the literature findings and
explain the rational behind the research approach.
4.2
4.2.1
The Delphi technique
Background
The aim of this research is to develop a common, accepted project
governance framework that could be used as a management guideline and
decision-making framework for the development, implementation and eventual
operation of LCPs. The framework should guide decision-making and provide
an environment within which the project manager can manage all the activities
towards the overall improvement of project performance.
From the outset it was clear that the development of a project governance
framework is barely in the definition stage and would require extensive
consultation and discussion in order to progress towards model development.
2008
133
Project Governance for Capital Investments
Some form of decision-making technique, which facilitated the involvement
and communication of multiple, knowledgeable participants had to be
mobilised in order to define and develop the eventual structure of the project
governance framework. The technique also had to allow for the participation
of geographically dispersed respondents and clustering of expert opinions.
These constraints led to the consideration of using the Delphi technique,
especially for the initial part of the research questioning.
The Delphi technique is part of the family of group decision-making
techniques that includes the nominal group technique (NGT) and interacting
group method (IGM). The Delphi technique differs in various ways from NGT
and IGM, but principally in fact that Delphi is individual based, anonymous and
independent. The element of group interaction is eliminated and feedback to
questionnaires can be in written format (Loo, 2002:763). The most significant
differences among the three main group decision-making methods are
explained by Delbecq, Van de Ven and Gustafson (1975:32) and tabulated
below in Table 4.1.
According to Loo (2002), organisations should consider the Delphi technique
when they investigate decision-making strategies that will set the future
direction for organisations. As it is believed that the formulation of a project
governance framework belongs firmly in this category of guiding the future
direction of organisations, the Delphi technique seems appropriate as a
research technique to build on the initial framework that has been developed
by studying the available literature and logical reasoning.
Olaf Helmer and Norman Dalkey, of the Rand Corporation, created the Delphi
technique in the 1950s (Buckley, 1995:16; Helmer-Hirshberg, 1967).
The
technique attempts to make effective use of informed intuitive judgment in
long-range forecasting. In its simplest form, the Delphi method solicits the
opinions of experts through a series of carefully designed questionnaires
interspersed with information and opinion feedback.
2008
134
Project Governance for Capital Investments
Table 4.1: Comparison of qualitative differences among IGM, NGT and Delphi
Dimension
Overall
methodology
IGM
Unstructured
meeting.
High variability
between decisionmaking groups.
NGT
Structured meeting.
Low variability
between decisionmaking groups.
Delphi
Structured series of
questionnaires and
feedback reports.
Low variability between
decision panels.
Role orientation
of groups
Social-emotional
focus.
Balanced socialemotional and taskinstrumental.
Task-instrumental.
Relative
quantity of ideas
Low, focused ‘rut’
effect
High, independent
thinking.
High, isolated thinking.
Relative quality
and specificity
of ideas
Low quality.
Generalisations.
High quality.
High specificity.
High quality.
High specificity.
Normative
behaviour
Inherent conformity
pressures.
Tolerance for nonconformity.
Freedom not to conform.
Search
behaviour
Reactive.
Short problem focus.
Task-avoidance
tendency.
New social
knowledge.
Proactive.
Extended problem
focus.
High taskcenteredness.
New social and task
knowledge.
Proactive.
Controlled problem
focus.
High task-centeredness.
New task knowledge.
Equality of
participation
Member dominance.
Member equality,
Respondent equality in
pooling of independent
judgements.
Methods of
conflict
resolution
Person-centred.
Smoothing over and
withdrawal.
Problem-centred.
Confrontation and
problem solving.
Problem-centred.
Majority rule of pooled
independent
judgements.
Closure to
decision
process
Lack of closure.
Low felt
accomplishment.
High closure.
High felt
accomplishment.
High closure.
Medium felt
accomplishment.
Task motivation
Medium.
High.
Medium.
Source: Delbecq et al. (1975)
According to Greek mythology, the oracle at Delphi was consulted to forecast
the future so that correct and timely decisions could be made before
embarking upon a major course of action, such as waging war. The approach
taken by the research team was that subject-matter experts could be solicited
2008
135
Project Governance for Capital Investments
for their opinions or expectations about the likelihood of future events or
scenarios.
Various definitions of the Delphi technique can be found in literature.
According to Mullen (2004), Linstone and Turoff define the Delphi technique
as follows:
Delphi may be characterised as a method for structuring a group
communication process so that the process is effective in allowing a group of
individuals, as a whole, to deal with a complex problem.
Sackman (1975), in a critique of the Delphi, summarises the technique as
follows:
Conventional Delphi generally refers to the iterative polling of experts or nonexperts, who remain anonymous and do not directly communicate with each
other, accompanied by statistical feedback for each item in successive
rounds, with or without verbal commentary.
Loo (2002) describes the Delphi as:
A method that structures and facilitates group communication that focuses
upon a complex problem so that, over a series of iterations, group consensus
can be achieved about some future direction.
According to Delbecq et al. (1975), the Delphi technique is a survey technique
for decision-making among isolated anonymous respondents.
Delbecq et al. (1975) further elaborated on the functioning of the technique,
describing the characteristics as:
•
The isolated generation of ideas, in writing, that produces a high quantity
of ideas.
•
The process of writing responses to the questions forces respondents to
think through the complexity of the problem, and to submit specific, highquality ideas.
•
Search behaviour is proactive since respondents cannot react to the
ideas of others.
2008
136
Project Governance for Capital Investments
•
The anonymity and isolation of respondents provides freedom from
conformity pressure.
•
Simple pooling of independent ideas and judgements facilitates equality
of participants.
•
The Delphi technique tends to conclude with a moderate perceived
sense of closure and accomplishment.
•
The technique is valuable for obtaining judgments from experts who are
geographically isolated.
Since this study might be the initiation of further study and aims to attract a
wide spectrum of inputs from various geographically dispersed individuals, the
Delphi technique may be well suited as a research approach and method.
4.2.2
Criticism of the Delphi
The Delphi as a research technique has had its fair amount of criticism,
support and debate on epistemology (Mullen, 2003). The major criticism is
Delphi’s alleged failure to follow accepted scientific procedures, in particular
the lack of psychometric validity (Sackman, 1975). However, those defending
Delphi argue that it deals with areas that do not lend themselves to traditional
scientific approaches. Helmer (1977:18-19) argued that the futures analysis,
one of the major applications of Delphi, “is inevitably conducted in a domain of
what might be called ‘soft data’ and ‘soft laws’”. He further argued that
standard
operations
research
techniques
should
be
augmented
by
judgemental information and that the Delphi technique cannot be legitimately
attacked for using mere opinions and for violating the rules of random
sampling in the ‘polling of experts’. Such criticisms, he argued, “rest on a
gross misunderstanding of what Delphi is … it should be pointed out that a
Delphi inquiry is not an opinion poll”. As the various definitions illustrate, in no
instance is reaching a majority opinion the ultimate goal in a Delphi: it is rather
the reaching of agreement. According to a quote from the Cary Salmon
Report in Buckley (1995) “Delphi is a tool for discovering agreement and
identifying differences rather than forcing consensus”. Buckley (1995) further
states: “In principle, agreement alone is not a sufficient condition for arguing
2008
137
Project Governance for Capital Investments
that something is plausible. However, as with the majority of research tools,
the method of use and application has a huge impact on the eventual
success. It is believed that where no agreement develops the Delphi still
helps to clarify the issue”, with Linstone and Turoff (2002) adding that one of
the common reasons for failure in a Delphi is ignoring and not exploring
disagreements.
Ultimately, Coates (1975) responds to the primary criticism against the Delphi
method not being scientific by stating: “If one believes that the Delphi
technique is of value not in the search for public knowledge, but in the search
for public wisdom; not in the search for individual data but in the search for
deliberative judgment, one can only conclude that Sackman missed the point.”
Thus, group communication forms the centre of the Delphi technique and
provides a platform to facilitate input from, and discussions among,
knowledgeable, experienced and expert individuals.
4.2.3
Epistemological approach towards the Delphi design
The differences between the various group techniques, the definitions of the
Delphi method as compiled by theorists and academics, and cognisance of
the various criticisms forms the epistemological basis for defining the
approach towards a Delphi design. As explained by Scheele (2002), the
concreteness of the context of the Delphi design is paramount in reaching the
overall objective of the study. The basic premises of the research design
towards the formulation of a project governance framework for LCPs is
embedded in some form of general agreement and consensus regarding the
core ingredients and components of the eventual framework. Given the
current status of, or lack-of, a generally agreed project governance
framework, the search for consensus and a point of departure is therefore
justified. In consideration of the critique voiced principally by Sackman (1975),
the use of the Delphi method is justified and builds on the reasoning of Dalkey
and Helmer (1963:458): “Its [Delphi’s] objective is to obtain the most reliable
2008
138
Project Governance for Capital Investments
consensus of opinion of a group of experts”. As referred to in Mullen (2003),
further support for the reaching of consensus through the Delphi method if
given by Lindeman (1975:435), who states that, “The Delphi technique …
involves the use of a series of questionnaires designed to produce group
consensus”. More recently, Philips (2000:192) suggested: “The Delphi
technique is a method for obtaining consensus of informed opinion by
soliciting the views of experts in the specific field being studied”.
The use of experts has a profound impact on the Delphi design. Potential
speculation of “what question lies behind a question”, or “what prompted a
specific response” could have a profound impact on the eventual outcome.
According to Critcher and Galdstone (1998:432), the Delphi design should “…
allow for a potential outcome which may include the degree of consensus or
dissensus, specifying the range of different positions, and revealing the
rationales which lie behind the judgments”.
It can be concluded that whether or not a consensus should even be sought
lies in the purpose of the Delphi. With positive questions, the aim is to find the
correct answer, whether it is an outlier or not, rather than a unanimously
agreed wrong answer. Hence the importance of exploring disagreements as
the outlier might be correct. However, when the aim is to obtain normative
views, as in this research study, seeking consensus might well be appropriate.
4.2.4
Main components of the Delphi technique
According to Loo (2002), the Delphi technique consists of five major
characteristics:
•
The sample consists of a panel of carefully selected experts representing
a broad spectrum of opinion on the topic or issue being examined.
•
Participants are usually anonymous.
•
The ‘moderator’ (i.e. researcher) constructs a serious of structured
questionnaires and feedback reports for the panel over the course of the
Delphi.
2008
139
Project Governance for Capital Investments
•
It is an iterative process often involving three to four iterations or ‘rounds’
of questionnaires and feedback reports.
•
There is an output, typically in form of a research report containing the
Delphi results, the forecasts, policy and program options (with their
strengths and weaknesses), recommendations to senior management
and, possibly, an action plan for developing and implementing the
policies and programs.
Given the exploratory nature of this research, it is further believed that the
Delphi technique is well suited to obtaining credible inputs from experts in
industry and academia to serve as key input towards the development of a
project governance framework. The following paragraphs provide more detail
regarding the practical design and execution of the Delphi study for this
dissertation.
4.3
Designing, constructing and executing the Delphi study
Given the rationale behind the Delphi technique and the key characteristics
explained, the design, construction and execution of the Delphi study followed
a sequential process - as with all other research methods.
Loo (2002) refers to four key planning and execution activities, namely:
•
problem definition
•
panel selection
•
determining the panel size, and
•
conducting the Delphi rounds.
In support of Loo’s approach, Delbecq et al. (1975) applies a basic Delphi
methodology that includes distinct stages, such as Delphi question
development, respondent selection, sample size, first questionnaire, first
questionnaire analysis and follow-up questionnaires. This methodology forms
the basis of this research study and is explained in the following paragraphs
2008
140
Project Governance for Capital Investments
4.3.1
Stage 1 – Develop the Delphi question
The formulation of the Delphi question is a key to the overall process. It is
paramount that respondents understand the broad context within which the
questionnaire is designed, especially with this dissertation where the concept
of project governance has different meanings for different people and the
difference between project control and project governance needs to be
clarified upfront. For the study to be successful, some key questions need to
be addressed. The basis of constructing the questions is based on the
guidelines given in Table 4.2 below, with corresponding wording and phrasing
given for this study.
Table 4.2: Delphi question formulation
Phrasing for this study
Key Delphi question?
Why are you interested in this This study was initiated because of the belief that
many LCP failures are not due to the poor
study?
application of project management tools and
techniques, but rather the poor definition, or lack
of a proper definition and applied project
governance framework.
What do you need to know that Currently it is not clear what a project governance
framework should be based on or should contain.
you don’t know now?
At the end of this study it should be clear what the
definition of project governance should be and,
secondly, what the components of a project
governance framework should be.
How will the results from the
Delphi
influence
decisionmaking once the study has
been completed?
4.3.2
The result of the Delphi study should be a project
governance framework for LCPs that will direct
and assist decision-making throughout the lifecycle of the project.
Stage 2 – Selection of respondents
When using group-decision techniques, the selection of respondents, or
‘expert panel’, can create a huge debate.
2008
141
Project Governance for Capital Investments
Sackman (1975:695-704) criticises the use of experts by pertinently asking
“What is an ‘expert’ in the target field?” and, “How are such experts
operationally defined?” He argues: “It is almost impossible to find current
psychometric or social science literature on ‘experts’”.
In contrast to the purist approach by Sackman, some alternative schools of
thought are also evident in the Delphi research environment. Pill (1971)
suggested that an ‘expert’ should be defined as anyone with a relevant input.
Mullen (2003) refers to some studies by Ishikawa, Amagasa, Shiga,
Tomizawa, Tatsuta and Mieno (1993), who ask ‘experts’ to self-rate their
expertise in the area concerned on a scale of 0 to 10. Usually the rate should
be an indication of their knowledge of each area as being derived from
‘awareness’, ‘reading’ or ‘working’ or evaluating their familiarity with each item
as fair, good or excellent.
However, the efficacy of such self-rating is
disputable and could only add another dimension to Delphi critique.
What is very clear is the fact that randomly selected representative samples
are inappropriate when expert opinions are required. Goodman (1987:730)
supports this approach by stating that the Delphi “tends not to advocate a
random sample of panellists … instead the use of experts or at least of
informed advocates is recommended”. Helmer (1977:18-19), also referred to
by Mullen (2003), argued that “it should be pointed out that a Delphi inquiry is
not an opinion poll, relying on drawing a random sample from ‘the population
of experts’; rather, once a set of experts has been selected (regardless of
how), it provides a communication device for them that uses the conductor of
the exercise as a filter in order to preserve anonymity of responses”.
Eventually Linstone (2002) pertinently states that the most significant danger
in selecting the ‘expert panel’ lies in the path of ‘least resistance’ through the
selection of a group of cosy friends and / or like-minded individuals.
With this study, the research topic is demarcated as LCPs but includes a fair
portion of heterogeneity through the inclusion of various industry sectors, for
example mining, infrastructure, petrochemical, oil and gas, building and
academia.
2008
142
Project Governance for Capital Investments
From the literature review and the directives of Delbecq et al. (1975), it is clear
that the participants of the Delphi study should be knowledgeable in the field
of study, have pertinent information to share, are motivated to include the
Delphi task in their schedule of competing tasks and feel that the aggregation
of judgements of a respondent panel will include information which they too
value and to which they would not otherwise have access.
In the light of the above directives, the respondents chosen for the study were
selected based on:
•
Personal, direct knowledge and acquaintance,
•
Indirect knowledge through specific reference,
•
Discussion and familiarisation at international conferences, and
•
Prominent practitioners whose projects appear in the general media.
A complete contact list of all potential participants was obtained. Before the
first questionnaire was distributed, each potential participant was contacted
and given an explanation of what the study comprised.
4.3.3
Stage 3 – Selection of sample size
The very nature of the Delphi technique calls for a qualitative, rather than a
quantitative approach. The use of experts for input already indicates that the
number of participants should be expected to be much lower than normal
quantitative surveys. The question is: How many experts should participate?
From the available literature very little indication was found regarding the
minimum number of participants required to take part in the Delphi study.
Linstone (1978:296) finds that “a suitable minimum panel size is seven” and
clearly states that the researcher runs the risk of accuracy deteriorating
rapidly as numbers increase.
Linstone’s
observation is supported
by
Cavalli-Sforza and Ortolano
(1984:325), who state that a “typical Delphi panel has about 8 to 12
2008
143
Project Governance for Capital Investments
members”, while Phillips (2000:193) believes that the optimum is between
seven and twelve members.
Determining the size of the respondent panel has always been a contentious
issue. However, considering the arguments that the Delphi should not be
viewed as an opinion poll, as well as the broad view expressed by authors in
this field, it seems that panel sizes ranging from 7 to 20 might be appropriate,
at least for the first round of a questionnaire.
With a Delphi study, the selection of an initial respondent panel size is
variable. From the literature review it was concluded that the size varies
between 7 and 20. For this study it was decided to identify 30 individuals on
the following basis:
•
A fair and practical split between academics and practitioners. The two
categories may provide input for various perspectives and balance the
theoretical and practical considerations.
•
The respondents in both categories should have extensive experience in
LCPs. For practitioners, the guideline criterion is 20 years’ experience in
LCPs, whilst the profiling of academics will require information on
number of articles published and books authored and co-authored.
The intention was that the second round would be distributed to those
respondents who completed the first round of questionnaires.
4.3.4
Stage 4 – First questionnaire
Due to the mere fact that the Delphi technique is designed to obtain input
regarding a topic, the questions are kept to a minimum and are open-ended
(Scholl, König, Meyer and Heisig, 2004). The work by Scholl et al. is very
similar to the approach taken in this study in that 45 experts responded to six
very open-ended questions. A second round was conducted, with 25 experts
responding. The numbers are too low to derive representative statistics, which
is also not the objective of the study.
2008
144
Project Governance for Capital Investments
Based on the approach of Scholl et al. (2004), the first questionnaire of this
research asks individuals to respond to broad questions. Respondents were
expected to respond on-line, with the answers captured in a categorised table.
The questionnaire was designed to:
•
Allow adequate time for thinking and reflection (2 weeks),
•
Avoid undue focusing on a particular idea,
•
Avoid competition, status pressure and conformity issues,
•
Avoidance of choosing between definitions, concepts and ideas
prematurely.
The first questionnaire formed the basis of the research and further
questionnaire developments were to evolve from the feedback.
4.3.5
Stage 5 – Analysis of first questionnaire
Analysing the feedback from respondents poses a challenge. In many cases
the feedback is elaborate, necessitating careful selection of an analysis
technique and the obvious requirement to test the consolidated results for the
second round. According to Page and Meyer (2005), the most suitable
technique to be used for this type of qualitative research proved to be informal
content analysis. The technique consists of scanning the content for recurring
and repeated themes / concepts / words and constructing a summarised /
consolidated description of the feedback. An example of the use of the
technique is illustrated by Manickas and Shea (1997) during which customer
complaints were recorded and analysed at a large hotel in New York.
According to Glaser and Strauss (1967), potentially important information may
be overlooked when questions are directed to very specific factors. It is
therefore advised to rather include more information on observations initially
and verify with a second round of questioning during which the focus is more
on confirmation, rejection or refinement.
2008
145
Project Governance for Capital Investments
For this dissertation the summarised / consolidated feedback was returned to
the initial respondents for comment, confirmation or criticism.
The results from the first round of questionnaires formed the basis for the
second round of questionnaires.
4.3.6
Stage 6 – Second questionnaire
The second questionnaire incorporated the feedback from the first
questionnaire and was compiled in a format for a second round of feedback
and response from the respondents who completed the first round of
questionnaires. The feedback and confirmation of the second round formed
the basis for the rest of the research design, whether a draft model for case
study research or a questionnaire for quantitative studies.
4.4
Summary
This research aims to develop a project governance framework for LCPs
through a thorough review of the origin and development of corporate
governance models, guidelines and laws, as well as the continuing search for
structuring LCPs. This chapter addresses the research structure and method,
with specific emphasis on the Delphi method.
Due the exploratory nature of this research, the Delphi method seemed to be
the most appropriate to build on the framework that had been developed by
means of a literature survey. This method would allow the free flow of ideas
and thinking towards the formation of a project governance framework, with
sufficient room for providing specific and general input to the thinking and
contextualisation process.
The following chapter provides a detailed discussion on the actual Delphi
research review of the results obtained.
2008
146
Project Governance for Capital Investments
Chapter 5: Research Results and Concept Framework
From the literature review and informal discussions with project practitioners
and academia, it became clear that no common understanding exists
regarding the definition or meaning of project governance. The main objective
of the Delphi study was thus to obtain consensus regarding the term ‘project
governance’, its definition, its relationship with corporate governance and
project control as well as the challenges facing the development of a project
governance framework.
The following paragraphs explain the Delphi process and the results achieved.
5.1
Delphi – Round 1
The first round of the Delphi study followed the process of formulating key
questions, testing the response to questions with an advisory panel,
identifying and contacting the potential participants, gathering and analysing
the answers and preparing the second round of questions.
5.1.1
Data accumulation
The first round of the Delphi questionnaire was sent to 32 individuals selected
from a panel of practitioners and prominent academia from around the globe.
The panel represented countries such as Australia, Northern Africa, Southern
Africa, USA, UK, South America and other European countries. Each member
of the panel received a personalised email with the questionnaire attached
(Appendix A). In most cases the members were contacted telephonically,
urging them to participate in the study.
Eventually 15 (47%) responses were received with the feedback given in
Appendix B. The summary profiles of the respondents are given below in
Table 5.1 (Respondent Profile).
2008
147
Project Governance for Capital Investments
Table 5.1: Respondent Profile
Participant age bracket
No. of participants
Highest Academic Qualification
No of participants
Total
Average / participant
Number of international publications
Number of books authored
Capital value of projects managed
by respondents
21-30
31-40
1
41-50
3
B-degree
M-degree
8
4
Experience
372 years
24.8 years
30
12
51+
11
PhD
3
US$ 43,950,000,000
Industries
- Mining
- Petrochemical
- Infrastructure & Transport
- Telecommunications
- Academia
4
4
4
1
2
Capacity
Consultant
Client
Country Responses
South Africa
United States of America
Australia
United Kingdom
Brazil
Sweden
Denmark
Nigeria
Practitioner vs. Academia
Responses
Academia
Practitioners
Total
5.1.2
4
11
Sent out
14
6
2
6
1
1
1
1
Sent out
Received
9
2
0
3
0
0
0
1
Received
% Response
64%
33%
0%
50%
0%
0%
0%
100%
% Response
8
24
32
2
13
15
25%
54%
47%
Results analysis
Analysing the feedback from respondents posed a challenge: in many cases
the feedback was elaborate, which necessitated the careful selection of an
analysis technique and the obvious requirement of testing the consolidated
results through a second round. Key word search was initially considered
appropriate to calculate the number of repetitions of specific words, but it was
soon realised that this would not justify the effort since different words were
used to explain the same concept. The only option was to review the inputs,
2008
148
Project Governance for Capital Investments
construct a consolidated response and send it back for review, comment and /
or approval.
In order to arrive at the consolidated response, a different technique had to be
used that would allow for the wide spectrum of feedback. According to Page
and Meyer (2005), the most suitable technique to be used for this type of
qualitative research is informal content analysis. The technique consists of
scanning the content for recurring and repeated themes / concepts / words
and constructing a summarised / consolidated description of the feedback. In
order to verify the summarised / consolidated feedback, the results were
returned to the initial respondents for comment, confirmation or criticism.
The feedback on each question in the Delphi questionnaire indicated that all
the participants had specific views and that the principles under discussion
were topical and current. From the practitioners’ feedback it was quite
apparent that the questions asked did, in many cases, address some
sensitivities, especially with respect to the liability and accountability definition.
A discussion and summary of the responses to each question is provided
below, with key words and phrases highlighted. Details of each respondent’s
feedback are given in Appendix B.
Question 1: How would you define / describe the concept project governance?
The first question was open ended and aimed at providing participants with
the opportunity to express their views so as to determine their understanding
of the concept of project governance. The result confirmed the original
proposition that no agreed upon definition for project governance existed. The
answers given borrowed heavily from general governance and corporate
governance principles, although recognition was given to the fact that a
project’s main reason for existence is to bring about changes in the form of
business results or other benefits. Surprisingly, there was little mention of
personal accountability at this stage.
2008
149
Project Governance for Capital Investments
Table 5.2. Key words per respondent for question 1
Respondent
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Key words / Phrases
Project performance, risk
Rules, compliance, risk
Client requirements
Laws, principles, ethics, best practices
Delivering a business case
Internal controls, integrate with corporate governance, deliver against
commitments
Execution, international requirements
Rules, decision-making, appointment of authorities
Relationship between stakeholders and executive, protocols, risk,
audit, business case, ethics, policies, procedures
Rules, policies, procedures, business case as defined by the investor.
Auditing, monitor, recording
Ethics
Structures and processes, link business objectives / strategies with
project
Framework, part of investment and benefits, include 3rd parties,
subset of corporate governance
Processes, decisions, authorise
The key words and phrases were used to derive a summary answer to be
issued for further comments and/or confirmation.
Summary answer 1:
Project Governance is a set of management systems, rules, protocols,
relationships and structures that provide the framework within which
decisions are made for project development and implementation to achieve
the intended business or strategic motivation.
2008
150
Project Governance for Capital Investments
Question 2: Do current project management frameworks and practices fail to
address project governance? Please explain.
This question prompted the respondents to air their views on the availability
and suitability of literature on project governance. Given the response to
question 1, as expected the feedback on question 2 confirmed the lack of
frameworks and practices. Expected responses were classified as:
positive: i.e. there are ample tools, literature, frameworks, etc., available,
•
or
neutral: i.e. respondents reserve comments or refrain from giving an
•
opinion, or lastly
negative: i.e. in the view of the respondent there is very little, if any,
•
support available to apply project governance.
Table 5.3. Key words per respondent for question 2
Respondent
Key words / Phrases
1
Yes, little about risk, not commonly understood
2
Limited to money
3
Yes, insufficient systems
4
Maybe, level of integrity
5
Yes, project - not business focused
6
No - failure in understanding and application
7
Yes, lack understanding of international requirements
8
Yes - focus too much on contractual risk allocation
9
Yes - available but not integrated
10
No – frameworks available but not adhered to
11
Yes - experience, integration, require different levels
12
Yes - conflict of interest
13
PM frameworks to be used, lack of discipline in application
14
Yes - no integration between business and project
15
Yes - current practices focus on implementation
The key words and phrases were used to derive a summary answer to be
issued for further comments and/or confirmation.
2008
151
Project Governance for Capital Investments
Summary answer 2:
Overwhelmingly YES (current frameworks and practices do fail to address
project governance).
Although
some
guidelines
exist
on
the
Governance
of
Project
Management, concerns were raised regarding (1) the definition and
management of risk, (2) non-alignment and lack of integration with
business / strategic parameters (3) authority of project leaders, (4) practical
application of governance concepts in projects, as well as (5) discipline to
refine and apply project governance principles.
Question 3: What are the similarities between corporate governance and
project governance?
With the word ‘governance’ as the common denominator, this question
attempted to establish which aspects of corporate and project governance are
considered to be equally applicable.
Table 5.4. Key words per respondent for question 3
Respondent
Key words / Phrases
1
PG subset of CG, proactive, overlapping
2
Similar, difference in level of reporting
3
Project governance should refer to corporate governance
4
Same rules should apply
5
Project governance is a subset of corporate governance
6
Same
7
Same w.r.t. management and reporting
8
9
Same
10
Same, differ only in time
11
Follow corporate governance developments
12
Same in ethical standards
2008
152
Project Governance for Capital Investments
13
Compliance to rules and regulations, financial governance
14
Subset – Project governance to detail for project management what
corporate governance details for organisations! – (Good summary!!!)
?
Similar
15
The key words and phrases were used to derive a summary answer to be
issued for further comments and/or confirmation.
Summary answer 3:
General consensus was that for project governance the same principles
apply as for corporate governance. However, half the respondents added
that project governance should not only be aligned with, but be a subset of
corporate governance. Project governance should extend the principles of
corporate governance to address the uniqueness of the temporary nature
and relationships associated with projects. For example, where corporate
governance addresses the composition and functioning of the Board,
project governance should do the same for the project Steering
Committee.
Question 4: What are the differences between corporate governance and
project governance?
Whereas the previous question (Question 3) explored potential similarities
between corporate and project governance, this question attempted to extract
the key differences between the two concepts, especially those differences
that could distinguish project governance as a stand-alone concept.
Table 5.5. Key words per respondent for question 4
Respondent
Key words / Phrases
1
Not same level of disclosure
2
Detail, legal
3
Project governance should refer to corporate governance
2008
153
Project Governance for Capital Investments
4
Difference in objectives / profit approach
5
Different timeframes
6
7
Timeframes - requires different speeds i.t.o. decision making.
Integrate project governance with corporate governance
Project governance brings corporate governance to the project
8
Timeframe
9
Timeframe
10
Timeframe
11
Project governance micro, corporate governance macro level
12
Different sets of stakeholder interest due to timeframes
13
Project governance operational level, corporate governance strategic
14
Corporate governance for listed companies, project governance more
at project level
Corporate governance is strategic, project governance focus on
implementation
15
The key words and phrases were used to derive a summary answer to be
issued for further comments and/or confirmation.
Summary answer 4:
Corporate governance is very clear on the level and detail of financial
and legal disclosures, while for project governance the level and type of
disclosure is not at all clear. The difference in timeframes requires an
alternative approach towards the process and speed of decision-making.
Question 5: What are the differences between project control and project
governance?
From the literature review and discussions with project practitioners and
academics, it became clear that various interpretations exist with respect to
the use of the term ‘project governance’. While many believed project
governance has a strategic element attached to it, others viewed the concept
as akin to project monitoring and control mechanisms, thus very much
2008
154
Project Governance for Capital Investments
operational. This question attempted to obtain a clear distinction, if any,
between what is believed to be ‘project governance’ and ‘project control’.
Another important aspect of this question was the fact that it also addressed
the observation made in Chapter 1, Table 1.3, that project control was the
common factor from various research outputs as a main contributor to project
failure. Thus, when testing the eventual framework, the impact of good or poor
project control on the level of success of the studied projects should be
considered.
Table 5.6. Key words per respondent for question 5
Respondent
Key words / Phrases
1
PC is a subset of PG
2
PG is proactive, set the scene
3
Project control is a subset of project governance
4
Control involves process, project governance involves overall project
management
Project governance focus on business delivery
5
6
7
Project control is a subset of project governance. Project governance
sets the environment for project control
Project control - day-to-day, Project governance is more strategic
8
9
Project governance operates at a more strategic level
10
Project control is a subset of project governance
11
12
Project control is at project management level. Project governance at
macro level
Project governance is validating
13
Project control is a subset of project governance
14
Project governance more strategic than project control
15
Project authorities
The key words and phrases were used to derive a summary answer to be
issued for further comments and/or confirmation.
2008
155
Project Governance for Capital Investments
Summary answer 5:
Project control is a subset of project governance. Project governance
should be a proactive measure that sets the scene and framework within
which project management, and subsequently project control, should
function.
Question 6: To what extent should a project governance framework for large
capital projects be project specific, company specific, country specific or
generic?
Acknowledging that projects are unique, this question explored whether any
form of generalisation should be allowed for in the development of a project
governance framework, especially for large capital projects.
Table 5.7. Key words per respondent for question 6
Respondent
Key words / Phrases
1
Generic base with room for specifics
2
Generic base with room for specifics
3
Generic base with room for specifics
4
Generic base with room for specifics
5
Generic
6
Generic
7
Generic base with room for specifics
8
9
Generic base with room for specifics. Accommodate different levels
of decision-making
Generic base with room for specifics
10
Generic base with room for specifics
11
Generic base with room for specifics
12
Generic
13
Generic and adaptable
14
Generic to be adapted
15
The key words and phrases were used to derive a summary answer to be
issued for further comments and/or confirmation.
2008
156
Project Governance for Capital Investments
Summary answer 6:
A project governance framework should be largely generic, with room to
incorporate project specific and unique requirements.
Question 7: Much effort currently goes into the establishment of global
corporate governance principles. What challenges need to be considered and
overcome in the development and establishment of a formal global project
governance framework for large capital projects involving multiple countries
and companies?
A fairly open question, aimed at prompting participants to provide personal
views, based on experience and insight, to what should be considered when
constructing a project governance framework. The specific items will be used
as key guiding instruments during framework development.
Table 5.8. Key words per respondent for question 7
Respondent
Key words / Phrases
1
Definition of outcomes and risks, financiers input will be key
2
3
Understanding by senior management. Requires competence
4
Global view with financier inputs to be considered
5
Align project governance with corporate governance
6
Financier input
7
Obtain common principles, generic for overall application
8
Apply to countries with no / weak CG
9
Difficulty in simplicity, danger in ‘too many’ rules.
10
Overcoming resistance from stakeholders
11
Difficulty in simplicity and practicality
12
Implementation challenge, standardise
13
Remote application. Virtual work
14
15
2008
Focus on authority and communication
157
Project Governance for Capital Investments
The key words and phrases were used to derive a summary answer to be
issued for further comments and/or confirmation.
Summary answer 7:
Challenges include: (1) Accommodating financier's requirements and risks,
(2) application in countries with weak corporate governance, (3) application
in countries where senior / influential individuals "do not want better
control" for selfish reasons, (4) complexity of globalisation and virtual work,
(5) making project governance simple and practical to apply, as well as (6)
overcoming stakeholder resistance to "another" form of statutory
requirement.
Question 8: How should role player liability towards eventual project
performance be incorporated in a global project governance framework?
Corporate, and even personal liability, is clearly defined in corporate
governance. With the large capital value involved and the strategic importance
of many LCPs, this question prompted respondents to assess whether the
same levels of accountability and corresponding liability should be addressed
in project governance.
Table 5.9. Key words per respondent for question 8
Respondent
Key words / Phrases
1
Essential
2
3
Competence and knowledge regarding projects
4
Difficult concept. No comment
5
Must be clear on accountability
6
Liability not directly part of governance
7
Not clear, dependant on stakeholders
8
9
2008
Beware of adversity
158
Project Governance for Capital Investments
10
11
12
Part of quality system
13
Be clear on liabilities in contracts
14
Be very clear
15
Same liability as board of directors
The key words and phrases were used to derive a summary answer to be
issued for further comments and/or confirmation.
Summary answer 8:
This question provided for the only real difference in opinion.
Approximately half of the respondents believed that stakeholder liabilities
should be clearly defined in as much detail as possible (as with the board
of directors in corporate governance), while the other school of thought
argues any items or actions that could create potential adversarial
situations should be avoided and handled outside the project context.
Question 9: Please provide any other comments that you might have
regarding the development and implementation of a project governance
framework.
As with most Delphi studies, the last question of the first round allowed for
open-endedness so that the respondent has the opportunity to air views not
specifically addressed in the previous questions.
Table 5.4. Key words per respondent for question 9
Respondent
Key words / Phrases
1
PG not a substitute for self-governance
2
3
Project governance part of methodology
4
Simplicity, practical
5
2008
159
Project Governance for Capital Investments
6
Use generic and customise to country / project
7
8
9
10
Practical
11
Framework for decision-making
12
13
Be part of business process, not stand-alone. Self- governance
14
15
The key words and phrases were used to derive a summary answer to be
issued for further comments and/or confirmation.
Summary answer 9:
The project governance framework should be (1) generic with the
possibility to incorporate project specific requirements, (2) very practical to
use, (3) a framework for decision-making and (4) contain an element that
promotes self-governance. Project governance should reduce runaway
5.1.3.
Delphi
Roundjust
1 –as
Conclusions
project
spending,
good corporate governance reduces uncontrolled
losses.
Responses to the first round of Delphi were very positive and the quality of
input can only be commended. Apart from direct responses to the various
questions, some additional side notes confirmed the belief that the topic under
discussion is most relevant and necessary. No respondent queried the
questions asked or provided alternative suggestions on how the topic should
be approached.
After the first round, it became clear that the vast majority of respondents
were at the same level of reasoning. Those questions aimed at seeking
definition and direction towards the establishment of project governance (i.e.
Questions 1, 3, 4 and 5) as an acceptable and mutually understood concept,
achieved their objective and the responses were formulated such that each
2008
160
Project Governance for Capital Investments
summary answer could be drafted clearly enough for clarity testing and
adjustment during the second round. Exploratory questions (i.e. Questions 2,
6, 7, 8 and 9) provided guidance towards the shaping of the eventual
framework structure in the sense that the majority of respondents believed
that alignment with acceptable corporate governance practices will be
essential for project governance success. It was also clear that current
literature and theory do not assist or support either practitioner or academic in
the quest for any form of governance in projects.
With summary answers compiled, the second round of Delphi was sent to all
the first round respondents.
5.2
Delphi - Round 2
The second round of the Delphi study aimed at providing the first round
respondents with the opportunity to review the initial findings and comment on
the results. Respondents could reject the findings, agree in principle with
conditions or accept the outcome (see results in Appendix C). The second
questionnaire contained all the summary answers with space for comments.
Seven responses were received with general agreement on the concepts and
minor detail comments. The only major critique from one respondent was his
belief that project governance should be project specific. With the other seven
respondents
agreeing
on
a
common
framework
with
flexibility
to
accommodate project specifics, it was concluded that the original approach be
maintained. It was further concluded that a third round of Delphi would not be
necessary for further clarification.
The common agreement, reached after the second round of the Delphi
survey, paved the way for the next step, that of developing a Concept Project
Governance Framework (CPGF).
2008
161
Project Governance for Capital Investments
5.3
The concept project governance framework (CPGF)
With the key fundamentals of project governance firmly established, the next
step was the development of the CPGF.
The following paragraphs will detail the process followed to develop the
framework and illustrate and formulate the proposed framework.
5.3.1
Establishing the basis for CPGF development
In developing the CPGF, various findings in the research thus far have to be
considered. This includes:
•
The failures and listed shortcomings in the institutional arrangement of
governance, as listed in Table 2.2. Although not addressed on an
individual basis, the concerns listed need to be considered when
formulating clauses and concepts. By considering these shortcomings
the practicality of common critiques on governance will be addressed.
•
The structure and layout of formal corporate governance frameworks
such as Sarbanes Oxley (Table 3.1) and King II (Table 3.2). These
structures will be used to ensure the CPGF alignment with current
corporate governance practices as suggested by the Delphi respondents
in questions 3 and 4 of the Delphi questionnaire.
•
The comparison and summary of Sarbanes Oxley and King II, as listed in
Table 3.3.
•
The results of the Delphi research.
•
The consideration of the guidelines set by APM (2004), OECD (2004),
Cadbury Report (1992) as well as the United Nations Economic and
Social Council (2005).
A further consideration that had to be incorporated when preparing for
development of the CPGF, was how the framework would be tested on single
or multiple cases. The framework has to assist in determining whether:
2008
162
Project Governance for Capital Investments
•
The lack of project governance or the lack of project control had a
dominant impact on poor project performance.
•
The application (formal or informal) of project governance principles had
a more significant impact on the positive outcome of project success
than did project control.
Eventually, the research should ideally provide conclusive evidence of impact
of project governance on project outcome and indicate whether project
governance has a higher or lower impact on project success than project
control does.
In developing the detail of the CPGF, the following process was followed:
Step 1 – Align corporate and project governance structures (address Delphi
questions 3 and 4).
Step 2 – For each project governance category selected, include
supplementary material and detailed concepts from the literature and Delphi
results to populate the project governance column.
Step 3 – Complete CPGF framework and structure.
A process of deductive reasoning was followed to incorporate requirements
contained in corporate governance frameworks and integrate requirements
listed by respondents during the Delphi study into a new framework.
Apart from establishing a concept framework for project governance the
CPGF also served as protocol to conduct the case study research.
The formulated CPGF would then be tested by means of the evaluation of
multiple case studies.
2008
163
Project Governance for Capital Investments
5.3.2
Step 1 – Corporate and project governance alignment
Learning from the comparative study in Table 3.3, the main and subcategories of corporate governance are listed in matrix format in Table 5.11
below. In order to align project governance to the matrix, a second column
was inserted that contains the project principles to be addressed. The key
items addressed are indicated in brackets and italic form in each cell. During
Step 2 the allocated cells under project governance would be replaced and
populated with the necessary motivation from identified sources.
Table 5.11: Corporate vs. Project Governance Alignment
C. Corporate Governance
P. Project Governance
A. Board of Directors and Audit
Committee
A. Project Steering
Committee
1. Composition
1. Core Competencies
2. Sufficient size
3. Comprised of executive and nonexecutive members
4. Chairperson should be
independent
(List Steering Committee
composition requirements,
competence and levels of
independence)
2. Responsibility
1. Board has ultimate accountability
for the affairs of the company
2. Board should adopt a formal
charter describing its
responsibility, which should be
disclosed annually
(List how responsibilities and
accountabilities should be
handled within a project)
3. Audit
Committee to
Board of
Directors
1. Levels of independency
2. Financial literacy
(Level of estimating and cost
control management)
B. Financial Reporting and Internal
Control
B. Cost and Benefit
Management
1. Financial
Reporting
Responsibility
1. Board must report certain items
annually regarding the preparation
of financial statements and the
use of effective internal controls
2. Quarterly certification by the CEO
and CFO regarding compliance
with the Exchange Act
(Who takes responsibility for
cost estimation and how must
cost control be executed and
reported)
2. Financial
Disclosures
1. Prohibition of certain non-GAAP
information
2. Required disclosures in quarterly
and annual reports of all material
off-balance sheet transactions and
(Level of financial and other
interest disclosure among
project stakeholders)
2008
164
Project Governance for Capital Investments
other defined relationships
3. All material correcting adjustments
to the financial statements must
be made
3. Internal
Controls
1. Internal control considered part of
the risk management process
2. Board must implement and
maintain generally recognized risk
management and internal control
frameworks
3. Disclosures must be made about
the risk management process
4. Requirement for quarterly
certification by the CEO and CFO
regarding their responsibility over
the disclosure controls and
procedures
C. Accounting and Auditing
(Formal requirements re. risk,
quality and impact on project
financial viability)
(Any reference to project lifecycle management, project
management in general and
project control)
C. Project Reviews and
Audits
1. Independence
1. External auditors should observe
the highest level of business and
professional ethics and should be
objective and aware of their
accountability to shareholders
2. Prohibits defined activities by the
external auditor
3. Stricter partner rotation rules,
limits on employment of former
external auditors, and prohibition
of fees earned by the audit partner
for certain non-audit services
(Any form of independence
requirement from project
auditors)
2. Interaction
with Companies
1. Requires an effective internal
audit function with a formal
internal audit charter
2. Requires mandatory
communication between the
external auditor and the audit
committee
(Any stipulation and
requirement with respect to
audit function communication)
3. New
Attestation
Report
1. External auditor must issue an
attestation report on
management’s internal control
report
(Any form of attestation
requirements)
4. Disclosure
1. Requires separate disclosure of
the amounts paid to the external
auditor for non-audit services, with
a detailed description of the nature
of services
2. Requires disclosure of fees paid to
a company’s principal external
auditor for the two most recent
years, with a description of the
nature of services
(Any requirements with respect
to disclosure of auditors’
compensation)
2008
165
Project Governance for Capital Investments
D. Organisational Ethics and
Remuneration
D. Ethical, responsible
conduct and conflict of
interest
1. Code of Ethics
1. Standards of ethical behaviour
should be codified in a code of
ethics
2. Adherence to this code should be
disclosed
3. Code should be made publicly
available and any changes to the
code or waiver from the code must
be disclosed
(Any requirement with respect
to ethics and ethical
behaviour by all or specific
stakeholders)
2. Compensation
1. Performance-related elements of
compensation should represent a
substantial portion of the total
compensation package
(List any indication of
requirement with respect to
compensation of key project
personnel, including Steering
Committee)
3. Safety, Health
and Environment
1. Included in business processes
(List any formal requirement
that could be legally binding)
4. Social
1. Requires detail regarding inclusion
of all local labour and
stakeholders
(List any items required with
respect to social
responsibilities)
5.3.3
Step 2 – Populating the Project Governance Cells
The above table provides a broad outline for respondent feedback that is
directly linked to the framework of corporate governance. The variables to be
addressed in corporate governance were listed and were to be viewed in the
context of the projects. Apart from the variables listed any additional items and
variables mentioned by the respondents were to be recorded and categorised
in appropriate sections.
The CPGF was divided into four main sections, covering:
A – Structuring of the steering committee (aligned with the Board of Directors
in corporate governance)
B – Cost Management (aligned with Financial Reporting and Internal Control
in corporate governance)
C – Project Reviews and Audits (aligned with Accounting and Auditing in
corporate governance)
2008
166
Project Governance for Capital Investments
D – Ethics, responsible conduct and conflict of interest (aligned with
Organisational Ethics and Remuneration in corporate governance).
Each section discussed below was derived through deductive reasoning:
A.
Board of Directors and Audit Committee versus Project Steering
Committee
CA.1.1: (C) Corporate Governance – (A) Board of Directors and Audit
Committee – (1) Composition - (1) Core Competencies
The National Association for Company Directors (NACD, 2002) states that the
core competencies of the board as a whole should include the following core
competencies:
•
Accounting and finance – Expertise in financial accounting and corporate
finance, including trends in debt and equity markets
•
Business judgement – A record of making good business decisions
•
Management – An understanding of the need and the intention to keep
abreast of general management ‘best practices’ and their application in
complex, rapidly evolving business environments
•
Crises response – The ability and time to perform during both short-term
and prolonged crises
•
Industry knowledge – One or more members with appropriate industryspecific knowledge and experience
•
International markets – Business experience in international markets
•
Leadership – A knowledge and understanding of empowerment skills,
and a history of motivating high-performing talent
•
Strategy / vision – Ability to provide strategic insight and direction by
encouraging innovation, conceptualising key trends, evaluating strategic
decisions and continually challenging the company to sharpen its vision
2008
167
Project Governance for Capital Investments
Translating the above into the PA 1.1 cell, the following core competencies
are proposed in-line with the corporate governance context:
PA.1.1: (P) Project Governance – (A) Project Steering Committee – (1)
Composition - (1) Core Competencies
•
Project finance and cost management (align with ‘accounting and
finance’) – Expertise in project finance structuring, estimating and cash
flow projections (Esty, 2004: 56). LCPs are all about business and
investment decisions and the project steering committee should have
proven ability to interpret project business proposals and to ask the right
questions.
•
Business / project alignment (align with ‘business judgement’) – ability to
clearly define the actual business and strategic benefit the project will
have (reference to Delphi question 2 response). The ability to link
projects with strategy and compile portfolios of project or programmes
Cost of changes
Opportunity to add value
has become a project field in its own right in recent years (Morris, 2004).
Time
Figure 5.1: Project life–cycle behaviour
•
Front-end-Loading (FEL) management (align with ‘Management’) –
understand the importance of spending sufficient time during the upfront
phases of the project to ensure proper definition, stakeholder alignment
and value engineering (Legace, 2006). Since project governance is
predominantly about setting up the project and preparing an environment
2008
168
Project Governance for Capital Investments
within which it has a chance to be successful, the importance of upfront
work should be emphasised by the steering committee.
The item of FEL fits into the project life-cycle definition and management
and specifically addressed the initial stages. A proper understanding of
the characteristics and behaviour of the project over its life-cycle is of
critical importance. This will necessitate the steering committee having
the ability to judge the level of accuracy of total project scope definition.
Figure 5.1 (Project life-cycle behaviour) illustrates the fact that the
opportunity to add value decreases as the project progresses along its
life-cycle, whilst the cost of change increases. Thus, if insufficient time is
spent upfront to properly define the project scope and establish all the
contractual and statutory agreements, the project might progress into
cost and time difficulties during the later stages.
•
Crises response (align with ‘crises response’) – Due to the temporary
nature and excessive time pressures usually associated with projects,
crises and crises management have become synonymous with project
management. In project management the ability to manage a crisis, or
sometimes various crises almost simultaneous, is paramount and
synonymous with the temporary nature of a project. With a strong
emphasis on deadlines, many good project managers are distinguished
by their ability to perform under pressure.
•
Industry knowledge (aligned with ‘industry knowledge’) – With the
establishment of the PMI in the 1960s, the intention was, and in some
areas still is, to develop the project management science and to promote
project management as a profession. This implies that a person can be
certified professionally as a PMP (Project Management Professional)
and should be able to apply the knowledge and skills in any industry or in
terms of any application. The IPMA (International Project Management
Association) has similar certifications (CPM – Certified Project Manager,
at various levels). However, the project management fraternity soon
realised that different languages are used in different industries, resulting
in the formation of Specific Interest Groups (SIGs. Currently, the debate
2008
169
Project Governance for Capital Investments
is still alive as to whether a PMP should be generally applicable or
whether the project manager should have some technical and / or
operational experience in the field where project management will be
applied. Given more than 15 years practical experience and an informal
survey that included experienced students in more than 50 project
management teaching classes over a period of six years, it is strongly
believed that, given the high impact nature of projects on skills required
… the project manager should be well versed with the area / industry of
application. Project managers need by no means to be specialists in their
industries, but they should have sufficient knowledge to prevent team
members from pulling the wool over their eyes. The project manager
should be able to ask relevant questions about issues and risks that
could have a potential impact on project performance.
•
International awareness (aligned with ‘international markets’) – Large
capital projects by nature involve multiple nations. This multi-country and
multi-culture involvement stems from the different capabilities and
competitive advantageous developed by the multi-national construction
and finance companies across the globe. The challenges that emerge
from a self-developing global temporary organisation require sensitivity
to different cultures from steering committee members.
•
Leadership – Since the project steering committee operates at a
strategic level, the question of leadership requirement should go undebated. For project governance to be exercised efficiently, those
elected onto the project steering committee should have proven
leadership credentials, especially with LCPs and the political / business
environment of the project itself.
•
Strategic alignment capabilities – since the initiation of a LCP of any sort
is usually the result of a macro strategic plan, the project steering
committee must be fully aware of strategic intention and goals. The
committee should also ensure that the strategic objective is adhered to
during the complete project life-cycle and that all activities, contracts and
stakeholder management be considered in the context of the total
organisational strategy.
2008
170
Project Governance for Capital Investments
•
Contract management – Due to the nature of large projects and
extensive use of various contracting strategies and formats, it is believed
that the steering committee should consist of members with extensive
experience and knowledge of the technical, commercial and legal
aspects of the respected contracting arrangements.
CA.1.2: (C) Corporate Governance – (A) Board of Directors and Audit
Committee – (1) Composition - (2) Sufficient Size
Prescription regarding the size of board is hardly ever found.
Translating the above into the PA 1.2 cell, the following core competencies
are proposed in line with the corporate governance context:
PA.1.2: (P) Project Governance – (A) Project Steering Committee – (1)
Composition - (2) Sufficient Size
The size of the steering committee will be determined by the type, complexity
and magnitude of the project. The steering committee members should
ensure that the committee is populated with the correct skills and authority
mix.
CA.1.3: (C) Corporate Governance – (A) Board of Directors and Audit
Committee – (1) Composition - (3) Member Mix
King II [2002] recommends that the board should comprise a balance between
executive and non-executive members, with the majority being non-executive
and a sufficient number of whom should be independent of management. The
UK’s Higgs Review, in KPMG [2003], notes that the UK’s Combined Code
stipulates “at least half of the members of the board, excluding the chairman,
should be non-executive directors”.
2008
171
Project Governance for Capital Investments
Translating the above into the PA 1.3 cell, the following approach to steering
committee member mix is proposed:
PA.1.3: (P) Project Governance – (A) Project Steering Committee – (1)
Composition - (3) Member Mix
In a project environment, the steering committee should not only oversee the
economic viability of the project but also its sustainability and non-monetary
implications. With LCPs environmental and socio-economic impact could be
significant and the steering committee mix should include representatives who
will oversee and address these factors on behalf of stakeholders and not only
protect the economic and infrastructural benefits or maximise shareholder
interests. Each member of the steering committee should provide individual
input from varying perspectives.
CA.1.4: (C) Corporate Governance – (A) Board of Directors and Audit
Committee – (1) Composition - (4) Chairperson independent
Countries outside of North America are increasingly accepting the principle of
a non-executive, independent chairperson for company boards. This
separates the functions of the CEO and board chairperson. Many believe this
is necessary to avoid giving too much power to the CEO. In general, the roles
of the chairperson include:
•
Providing overall leadership to the board without limiting the principles of
collective responsibility for board decisions,
•
Actively participating in the selection of board members,
•
Addressing the development needs of the board as a whole and of
individual directors,
•
Monitoring and evaluating board and director performance appraisals,
•
Developing a working plan for the board and compiling meeting agendas,
•
Acting as the main information link between the board and management,
and particularly between the board and the CEO,
•
2008
Ensuring the board has sufficient time to discuss issues,
172
Project Governance for Capital Investments
•
Maintaining relations with the company’s shareholders and, perhaps
some of its stakeholders, although the latter may be more in the nature
of an operational issue to be conducted by the CEO and a senior
management team,
•
Ensure that all relevant information and facts are placed before the board
objectively to enable directors to reach an informed decision.
Although preferably independent, the chairperson has specific roles and
responsibilities regarding the strategic leadership of the company.
PA.1.4: (P) Project Governance – (A) Project Steering Committee – (1)
Composition - (4) Chairperson independent
Due to the temporary nature of projects and the potentially wide economic,
socio-economic and environmental impact during project execution and
thereafter, the role of the steering committee chairperson might be more
active and involved than the corporate board chairperson.
The steering committee chairperson should typically address:
•
Establishment and confirmation of project governance criteria and
guidelines,
•
Upholding the highest standards of integrity and probity,
•
Setting the agenda and adopting a progressive and proactive tone in
steering discussions to promote effective and prompt decision-making,
•
Promoting effective relationships and open communication, both within
and external to the steering committee, as well as with the project
manager and the project team,
•
Promoting the highest standards of project governance and compliance,
•
Ensuring effective consideration and implementation of steering
committee decisions,
•
Providing coherent leadership representing the broader community and
effective liaison among financiers, stakeholders, tax payers and the
project team through the project manager.
2008
173
Project Governance for Capital Investments
The steering committee chairperson is the custodian of project governance.
CA.2.1: (C) Corporate Governance – (A) Board of Directors and Audit
Committee – (2) Responsibility - (1) Board Accountability
The board is ultimately responsible for ensuring that the business remains a
going concern and that it thrives. The board retains full and effective control
over the company and it must therefore ensure that it effectively controls the
company, directs and controls the management of the company and is
involved in all material decisions affecting the project [KPMG, 2003].
PA.2.1: (P) Project Governance – (A) Project Steering Committee – (2)
Responsibility - (1) Committee Accountability
It is believed that the project steering committee should fulfil a similar role as
the board in a corporate environment, but in a project context. The project
steering committee is ultimately accountable for effective and all-inclusive
development and implementation of the project, taking into consideration
stakeholder interests and external environment management (external to the
immediate project management activities). The committee should bridge the
void between project manager and immediate public, and statutory
environment within which the project will function. Items such as conflict of
interest, environmental and socio-economic impact, as well as contracting
strategies, should be pertinently addressed.
CA.2.2: (C) Corporate Governance – (A) Board of Directors and Audit
Committee – (2) Responsibility - (2) Charter
Board should adopt a formal charter describing its responsibility, which should
be disclosed annually.
PA.2.2: (P) Project Governance – (A) Project Steering Committee – (2)
Responsibility - (2) Charter
2008
174
Project Governance for Capital Investments
For an LCP a formal project governance charter should be developed and
agreed upon during the project initiation stages. The charter should be
available to any role players or wider stakeholder community. The charter
should address all the items listed in the project governance framework.
CA.3.1: (C) Corporate Governance – (A) Board of Directors and Audit
Committee – (3) Audit Committee - (1) Levels of Independency
King II (2002) recommends an audit committee with non-executive members,
the majority being independent and having sufficient financial literacy. The
UK’s Audit Committees Combined Code Guidance requires at least three
members, all of whom should be independent non-executive directors.
Furthermore, the chairman should not be an audit committee member.
PA.3.1: (P) Project Governance – (A) Project Steering Committee – (3) Audit
Committee - (1) Levels of Independency
The project audit committee should be independent, with the steering
committee excluded from the audit committee.
CA.3.2: (C) Corporate Governance – (A) Board of Directors and Audit
Committee – (3) Audit Committee - (2) Financial Literacy
In general, corporate governance guidelines are very clear regarding the
minimum financial literacy required for the audit committee.
PA.3.2: (P) Project Governance – (A) Project Steering Committee – (3) Audit
Committee - (2) Project Literacy
Whereas corporate governance focuses on financial literacy, the project
environment calls for a wider view that will not look at cost performance and
compliance with procedures, but at all aspects of the nine knowledge areas of
the PMBoK (PMI, 2005). Auditors should be experienced project managers
who will view actions in the context of the immense time pressures associated
2008
175
Project Governance for Capital Investments
with projects and the search for faster and less bureaucratic methods of
addressing the project objectives in a responsible manner.
B.
Financial Reporting and Internal Control versus Cost Estimating
and Benefit Management
CB.1.1: (C) Corporate Governance – (B) Financial Reporting and Internal
Control – (1) Responsibility - (1) Board
In terms of corporate governance the board must report certain items annually
regarding the preparation of financial statements and the use of effective
internal controls.
PB.1.1: (P) Project Governance – (B) Cost and Benefit Management – (3)
Responsibility - (2) Steering Committee
As opposed to a corporation, a project will not be driven by financial years but
rather shorter intervals (i.e. six monthly). Instead of financial compliance,
reporting should include expenditure control against baseline budget and
continuous updating against the initial business plan or project justification
parameters and benefits. The viability of the project against given and
assumed parameters should monitored and reported on at specific intervals.
CB.1.2: (C) Corporate Governance – (B) Financial Reporting and Internal
Control – (1) Responsibility - (2) Exchange Act
Quarterly certification by the CEO and CFO regarding compliance with the
Exchange Act
PB.1.2: (P) Project Governance – (B) Cost and Benefit Management – (3)
Responsibility - (2) Project Governance Charter
Quarterly certification by the chairman of the steering committee that the
project complies with the agreed upon project governance charter.
2008
176
Project Governance for Capital Investments
CB.2.1: (C) Corporate Governance – (B) Financial Reporting and Internal
Control – (2) Financial Disclosures - (2) Non-GAAP
Various corporate governance frameworks mention the disclosure of certain
non-GAAP information.
PB.2.1: (P) Project Governance – (B) Cost and Benefit Management – (2)
Financial Disclosures - (1) Project Finances
For any financial activities outside the GAAP requirements, full disclosure will
be required.
CB.2.2: (C) Corporate Governance – (B) Financial Reporting and Internal
Control – (2) Financial Disclosures - (2) Reports
Required disclosures in quarterly and annual reports of all material off-balance
sheet transactions and other defined relationships
PB.2.2: (P) Project Governance – (B) Cost and Benefit Management – (2)
Financial Disclosures - (2) Reports
Project’s financial status to be reported on a quarterly basis.
CB.2.3: (C) Corporate Governance – (B) Financial Reporting and Internal
Control – (2) Financial Disclosures - (2) Corrections and Adjustments
All material correcting adjustments to the financial statements must be made.
PB.2.3: (P) Project Governance – (B) Cost and Benefit Management – (2)
Financial Disclosures - (3) Corrections and Adjustments
2008
177
Project Governance for Capital Investments
All changes, including stakeholder requirements and scope, with the resulting
impact on the project’s financial and time performance, must be reported
within the immediate quarterly term.
CB.3.1: (C) Corporate Governance – (B) Financial Reporting and Internal
Control – (3) Internal Control - (1) Risk Management Processes
Internal control is considered part of the risk management process.
PB.3.1: (P) Project Governance – (B) Cost and Benefit Management – (3)
Internal Control - (1) Risk Management Processes
At a strategic / steering committee level, the cost and benefit calculations and
predictions, as well as the assumptions and basis for project justification
needs to be monitored and updated on a continual basis. The updated project
values and benefits should be used to identify and mitigate financial risks.
CB.3.2: (C) Corporate Governance – (B) Financial Reporting and Internal
Control – (3) Internal Control - (2) Risk Management
The board must implement and maintain generally recognized risk
management and internal control frameworks.
PB.3.2: (P) Project Governance – (B) Cost and Benefit Management – (3)
Internal Control - (2) Risk Management
The steering committee must ensure that proper risk identification,
quantification and mitigation planning is done on the project, not only
financially but covering at least the nine PMBoK Knowledge areas [PMI,
2004].
CB.3.3: (C) Corporate Governance – (B) Financial Reporting and Internal
Control – (3) Internal Control - (3) Risk Disclosure
2008
178
Project Governance for Capital Investments
Disclosures must be made about the risk management process.
PB.3.3: (P) Project Governance – (B) Cost and Benefit Management – (3)
Internal Control - (2) Risk Disclosure
Disclosures must be made about all the risks on the project during the total
project life-cycle.
CB.3.4: (C) Corporate Governance – (B) Financial Reporting and Internal
Control – (3) Internal Control - (3) Risk Certification
Requirement for quarterly certification by the CEO and CFO regarding their
responsibility over disclosure controls and procedures.
PB.3.4: (P) Project Governance – (B) Cost and Benefit Management – (3)
Internal Control - (2) Risk Certification
Requirement for monthly certification by the chairperson of the steering
committee of disclosure controls and procedures.
C.
Accounting and Auditing versus Project Reviews and Audits
CC.1.1: (C) Corporate Governance – (C) Accounting and Auditing – (1)
Independence - (1) Objectivity
External auditors should observe the highest level of business and
professional ethics and should be objective and aware of their accountability
to shareholders.
PC.1.1: (P) Project Governance – (C) Project Reviews and Audits – (1)
Independence - (1) Objectivity
As with corporate governance, the external auditors on the project should
observe the highest levels of business and professional ethics and should be
2008
179
Project Governance for Capital Investments
objective and aware of their accountability, not only to shareholders, but to
stakeholders in general.
As opposed to corporate auditing, project auditors should look beyond
financial and procurement compliance to the regulatory, statutory, ethical and
managerial environment created for the project to be successful. The external
auditors should therefore be qualified and experienced in LCP management.
CC.1.2: (C) Corporate Governance – (C) Accounting and Auditing – (1)
Independence - (1) Scope
Prohibits defined activities by the external auditor.
PC.1.2: (P) Project Governance – (C) Project Reviews and Audits – (1)
Independence - (1) Scope
Project reviews and audits should not be confined to adherence to in-house
methodologies and practices, but should include items that the review / audit
deems necessary to protect stakeholder interests.
CC.1.3: (C) Corporate Governance – (C) Accounting and Auditing – (1)
Independence - (1) Rotation
Stricter partner rotation rules, limits on employment of former external auditors
and prohibition of fees earned by the audit partner for certain non-audit
services.
PC.1.3: (P) Project Governance – (C) Project Reviews and Audits – (1)
Independence - (3) Rotation
Auditors should have no direct or indirect interest in the project or in the
contractors / suppliers involved with the project.
2008
180
Project Governance for Capital Investments
CC.2.1: (C) Corporate Governance – (C) Accounting and Auditing – (2)
Interaction - (1) Internal Charter
Requires an effective internal audit function with a formal internal charter.
PC.2.1: (P) Project Governance – (C) Project Reviews and Audits – (2)
Interaction - (1) Internal Charter
Requires an effective internal audit function with a formal internal charter. The
internal audit function should also include the auditing of project management,
adherence to project methodologies, process and agreed practices and the
project team’s functioning.
CC.2.2: (C) Corporate Governance – (C) Accounting and Auditing – (2)
Interaction - (1) Communication
Requires mandatory communication between the external auditor and the
audit committee.
PC.2.2: (P) Project Governance – (C) Project Reviews and Audits – (2)
Interaction - (2) Communication
As with corporate governance, it requires mandatory communication between
the external auditor and the audit committee.
CC.3.1: (C) Corporate Governance – (C) Accounting and Auditing – (3)
Attestation - (1) Report
External auditor must issue an attestation report on management’s internal
control report.
PC.3.1: (P) Project Governance – (C) Project Reviews and Audits – (3)
Attestation - (1) Report
2008
181
Project Governance for Capital Investments
External auditor must issue an attestation report on the project’s internal
control report.
CC.4.1: (C) Corporate Governance – (C) Accounting and Auditing – (4)
Disclosure - (1) Non-audit services
Requires separate disclosure of the amounts paid to the external auditor for
non-audit services with a detailed description of the nature of services.
PC.4.1: (P) Project Governance – (C) Project Reviews and Audits – (4)
Disclosure - (1) Non-audit services
As with corporate governance, it is required that separate disclosures of the
amounts paid to the external auditor for non-audit services, with a detailed
description of the nature of services, is made.
CC.4.2: (C) Corporate Governance – (C) Accounting and Auditing – (4)
Disclosure - (2) Fees
Requires disclosure of fees paid to a company’s principal external auditor for
the two most recent years, with a description of the nature of services.
PC.4.2: (P) Project Governance – (C) Project Reviews and Audits – (4)
Disclosure - (2) Fees
Requires disclosure of fees paid to a company’s principal external auditor
since project commencement.
D.
Organisational
Ethics
and
Remuneration
versus
Ethical,
Responsible Conduct and Conflict of Interest
CD.1.1: (C) Corporate Governance – (D) Ethics – (1) Code - (1) Standards
Standards of ethical behaviour should be codified in a code of ethics.
2008
182
Project Governance for Capital Investments
PD.1.1: (C) Project Governance – (D) Ethics – (1) Code - (1) Standards
Due to a relatively high amount of cash flowing over a fairly short period of
time on a project, the opportunity for misconduct, corruption and other greedy
practices was in fertile territory. The standards for ethical behaviour should be
clear and based on established and statutorily accepted laws, guidelines and
practices as well as global guidelines and directives (e.g. World Bank, United
Nations, etc.).
A code of ethics should be established and signed by each member of the
steering committee. The code should include (as a minimum):
•
Environment
•
Social aspects
•
Socio-economic aspects
•
Conflict of interest guidelines
CD.1.2: (C) Corporate Governance – (D) Ethics – (1) Code - (2) Adherence
Adherence to the Code of Ethics should be disclosed.
PD.1.2: (C) Project Governance – (D) Ethics – (1) Code - (2) Adherence
Adherence to the Code of Ethics should be disclosed and reported on a
monthly basis.
The logical deduction approach to formulating the CPGF proved to be a
comprehensive exercise. With no similar framework available for comparison
purposes, validation and justification of each component was necessary. For
practicality and comparative purposes, the CPGF is summarised in the next
paragraph.
2008
183
Project Governance for Capital Investments
5.4
The CPGF
The summarised CPGF, derived from the Delphi results and various other
inputs, is given below in Table 5.12.
Table 5.12: Concept project governance framework
P. Project Governance
A. Project Steering Committee
1. Composition
1. Core Competencies
•
Project finance and cost management
•
Business / project alignment
•
Front-end-Loading management
•
Crises response
•
Industry knowledge
•
International experience
•
Leadership
•
Strategic alignment capability
•
Contract management capabilities
2. Steering Committee Size
Determined by project type, complexity and magnitude
3. Member Mix
Comprise members with direct interest as well indirect
stakeholder representatives i.e. socio-economic and
environmental
4. Chairperson Independent
The chairperson should be independent from any project
stakeholders
2. Responsibility
1. Committee Accountability
Overall accountability
Bridging the gap between the project and the immediate
external and statutory environment
2. Charter
Development and adherence to project charter
2008
184
Project Governance for Capital Investments
3. Audit Committee
to Board of Directors
1. Levels of Independence
The project audit committee should be independent with the
steering committee excluded from the audit committee
2. Project Literacy
The Audit Committee should have extensive project
experience on all aspects of LCPs
B. Cost and Benefit Management
1. Financial
Reporting
Responsibility
2. Financial
Disclosures
1. Steering Committee
Report against approved budget
2. Project Governance Charter
Report on adherence to the charter
1. Project Finance
For any financial activities outside the GAAP requirements,
full disclosure will be required
2. Reports
Project financial status to be reported on a quarterly basis
3. Corrections and Adjustments
To be reported quarterly
3. Internal Controls
1. Risk Management Process
Formal risk management processes should be in place
2. Risk Management
The steering committee must actively ensure that proper risk
identification, quantification and mitigation planning is done
on the project - not only the financials but covering all
aspects of the project
3. Risk Disclosure
Disclosures must be made about all the risks on the project
during the total project life-cycle
4. Risk Certification
Requirement for monthly certification by the chairperson of
the steering committee regarding disclosure controls and
procedures
C. Project Reviews and Audits
1. Independence
1. Objectivity
Independence and objectivity of the project auditors and
reviewers must be ensured
2. Scope
Project reviews and audits should not be confined to
adherence to in-house methodologies and practices, but
should include items that the review / audit deems
necessary to protect stakeholder interests
2008
185
Project Governance for Capital Investments
3. Rotation
Auditors should have no direct or indirect interest in the
project or in the contractors / suppliers involved with the
project
2. Interaction with
Companies
1. Internal Charter
The internal charter should include the approach towards
the auditing of project management, the adherence to
project methodologies, processes and agreed practices and
the project team’s functioning
2. Communication
As with corporate governance, mandatory communication
between the external auditor and the audit committee is
required
3. New Attestation
Report
1. Report
External auditor must issue an attestation report on the
project’s internal control report
4. Disclosure
1. Non-audit services
As with corporate governance, it is required that separate
disclosure is made of the amounts paid to the external
auditor for non-audit services together with a detailed
description of the nature of services
2. Fees
Requires disclosures of fees paid to a company’s principal
external auditor since project commencement
D. Ethical, responsible conduct and conflict of interest
1. Code
1. Standards
A code of ethics should be established and signed by each
member of the steering committee. The code should include
(as a minimum):
•
Environment
•
Social aspects
•
Socio-economical aspects
•
Conflict of interest guidelines
2. Adherence
Adherence to the code of ethics should be disclosed and
reported on a monthly basis
3. Disclosure
Code should be made publicly available and any changes
to the code or waivers from the code must be disclosed
2. Compensation
1. Performance
Performance-related elements of compensation should
represent a substantial portion of the total compensation
package
3. Safety, Health &
1. Adherence
2008
186
Project Governance for Capital Investments
Environment (SHE)
SHE requirements should be to international standards as a
minimum and supplemented by host country requirements
4. Social
1. Adherence
Social and socio-economic considerations should be to
international standards as a minimum and supplemented by
host country requirements
This CPGF is in a format to be evaluated, tested and updated against actual
project case studies.
5.5
Summary
This chapter aimed at producing validated information in terms of the overall
research objective of producing a project governance model or framework. A
comprehensive Delphi study was done with answers to the open-ended
questions converging after two rounds. The average profile of the respondent
was that of well experienced and knowledgeable project practitioners and
academics.
The most significant observations emanating from the Delphi study were the
statement that a gap in project management theory exists with respect to
project governance and that an eventual project governance framework
should compliment and be aligned with corporate governance guidelines.
A CPGF was derived for evaluation against project case studies.
The next chapter will review the use of case study research and the methods
to be used in this dissertation. Two sources of case studies will be used to
assess the CPGF, namely case studies available in literature and selected
case studies to be investigated in depth.
2008
187
Project Governance for Capital Investments
Chapter 6: The Case Study Method
In the academic and research fraternity case study research remains
contentious. Purists in social research are convinced that generalisations can
only be made from quantitative data and that single case studies especially
are not suitable as a basis for theory building. The validity of this approach
has always been questioned by the proponents of qualitative research.
Although the debate remains, and will possibly continue into the future, since
the 1980s convincing arguments have surfaced that support and recognise
case study research as a valid form of scientific research and theory building
(Eisenhardt, 1989). Authors, researchers and academics who recognise and
support the value and use of case study research include Flyvbjerg (2006),
Emory (1985), Mitchell (1983), Bromley (1986) Edwards (1989), Eckstein
(1975) and Bryman (1988).
During an in-depth study of the main arguments against case study research,
Flyvbjerg (2006) provided strong evidence that case study research can be of
great value, especially where quantitative assessments are not possible.
Flyvbjerg (2006) addresses what he considers to be the five most common
myths regarding case study research. These myths argue that:
•
theoretical knowledge is more valuable than practical knowledge;
•
one cannot generalise from a single case, therefore the single-case
study cannot contribute to scientific development;
•
the case study is most useful for generating hypotheses, whereas other
methods are more suitable for hypothesis testing and theory building;
•
the case study contains a bias towards verification; and
•
it is often difficult to summarise specific case studies.
Although it is not the purpose of this chapter to enter the debate as to whether
case study research is a valid form of social research or not, the observations
made by the ‘quantitative’ school and the arguments of the ‘qualitative’ school
are duly considered in designing the remainder of this research.
2008
188
Project Governance for Capital Investments
In order to provide a valid argument for using case studies in the remainder of
this research, the following paragraphs will provide a short overview of where
case study research originated as a research method. The background will be
followed by an overview of the different types of case studies, the typical
process of designing a case study and finally an explanation regarding its
validity and suitability as a research strategy for this dissertation.
6.1
The origin and development of case studies
The use of case study research originated in the early 20th century in the field
of medicine (Wikipedia, 2 May 2007). The first attempt to create theory from
cases studies was fostered by sociologists Barney Glaser and Anselm
Strauss in their Grounded Theory concept in 1967. Since then, case studies
have been used more frequently in social research but gained extreme
popularity in teaching. The Harvard Business School was one of the first
tertiary institutions to realise that information contained in text books might not
be sufficient to explain grounded theoretical concepts. The first case studies
for teaching were based on interviews with leading business leaders and
documented in a structured format. In case study teaching, no solution is
given and the different cases are mostly used to stimulate discussions.
6.2
Different types of case studies
According to Yin (2003), the case study is one of several ways of doing social
science research. Other research methods include experiments, multiple
histories, surveys and analysis of historic or archival information. However,
case studies have become popular in research topics that have a strong
explanatory nature. When questions such as ‘how’ and ‘why’ are posted,
some in-depth study and search for meaning is sometimes required.
Even within the collective name of ‘case studies’, various forms of case study
methods exist. The first, and probably most widely acknowledged form of case
study research is the descriptive study. As explained by Page and Meyer
2008
189
Project Governance for Capital Investments
(2005), the descriptive study “sets out to describe a phenomenon or event as
it exists, without manipulation or control of any elements involved in the
phenomenon or event under study”. In it simplest and most general form, the
descriptive study will conduct an in-depth description of an individual,
organisation or group of objects to determine whether each case fits a
particular theory better than another or to determine whether something
makes the specific case, or group of cases, different to similar types of cases.
The descriptive study is founded on the phenomenological approach that
considers every situation or phenomenon to be unique and that this very
uniqueness contributes most to a better understanding of the whole.
Another prominent case study method is the exploratory study. This type of
study looks for ideas, patterns or themes that may be evident in single or
multiple situations (Page & Meyer, 2005). Exploratory studies are most often
undertaken as a first step when much uncertainty exists and before a largescale investigation is launched. One of the pitfalls of exploratory research is
the potential for premature conclusions and over-generalisation from specific
events.
A third type of case study is the critical instance case study (Wikipedia, 2 May
2007). This type of case study research aims to examine one or more sites for
one or two purposes. The technique is popular when a situation of unique
interest is investigated that can often not be generalised. A second application
is when a generally accepted assertion is evaluated against a single, unique
instance that could potentially contradict general belief. As an example: In
1650, with the development of the vacuum pump, it was proven in a single
case that a feather and a coin fall at the same speed. This confirmed Galileo’s
hypothesis and rejected the general belief as proposed by Aristotle.
Other forms of case studies that are not commonly used include program
effect case studies, prospective case studies, cumulative case studies,
narrative case studies and embedded case studies (Wikipedia, 2 May 2007).
However, the decision regarding the type of case study method to be used
depends on the case itself as well as on the case study design.
2008
190
Project Governance for Capital Investments
A case study is research in depth rather than in breadth and can contribute to
our understanding of a specific phenomenon or construct. In the scientific
enquiry after truth, the research design and tools are dictated by the data
available. Once the draft CPGF was developed, the need existed to find
empirical support for the model and also to find information from practice that
would improve the framework. For purposes of investigating project
governance, relevant information is available for specific cases and for this
exploratory study an in-depth analysis of a few cases was preferred to a
survey that would include a large number of cases but would limit the depth of
analysis.
The ideal would have been to investigate governance practices of a few highly
successful projects as well as of a number of highly unsuccessful projects, but
the realism of unwillingness to participate of project managers and others
involved in unsuccessful projects was soon realised.
6.3
Designing a case study
In designing a case study, various items and criteria need to be addressed.
The most critical item is probably the unit of analysis. Once the unit of analysis
is agreed and confirmed the remainder of the design process can commence,
namely: the decision regarding single or multiple case studies, the design of
the case study process and protocol, the collection of data and the
compilation of the case report. The following paragraphs provide an overview
of the key areas to be addressed when designing a case study.
6.3.1
Case study criteria
According to Yin (2003), case studies should contain five components,
namely:
•
The study’s questions
•
Its propositions (if any)
•
Its unit of analysis
2008
191
Project Governance for Capital Investments
•
The logical linking of the data to the propositions, and
•
The criteria for interpreting the findings.
Of the five components, the unit of analysis most often determines the
success and acceptability of the final postulation. If the unit of analysis is
clear, the logical linking of the data to the propositions and the criteria for
interpretation become less controversial and questionable.
To address the challenge of establishing proper units of analysis, the four
main criteria for validity need to be addressed, namely: construct validity,
internal validity, external validity, as well as reliability (Yin, 2003). Construct
validity seems to be the most problematic area in case study research. The
element of subjectivity usually comes into being at this point and, if not
addressed properly, it can open the research to serious criticism. The most
critical items to be addressed to ensure construct validity are the development
of a set of sufficient operational measurements and the use of ‘subjective’
judgement to collect data. Yin (2003) suggests three tactics to increase
construct validity, namely:
•
The use of multiple sources of evidence,
•
Establishing a chain of evidence that supports the overall reasoning with
regard to the conclusions, and
•
The draft case study report must be reviewed by key informants.
Obviously it will not always be possible to employ all the tactics for construct
validation. However, it is believed that at least one tactic should be employed.
Internal validity is mostly concerned with causal relationships and this might
not be valid for descriptive and exploratory case studies. External validity
addresses the generalisation of the findings. According to Yin (2003), the
concept of generalisation can be problematic in the case study arena if it is
not understood properly. In quantitative studies, surveys are done across a
broader audience from which result a statistical generalisation can be made.
For case studies, as with experiments, the generalisations are based on
analytical results and not survey results.
2008
192
Project Governance for Capital Investments
To ensure reliability, the method of data collection and analysis must be such
that, if another researcher conducts the same research, he/ she will achieve
the same results. In other words, the emphasis is on doing the same case
over again, rather than replicating the results by doing another case study.
Case study research attempts to generalize to some theory or proposition
rather than to some population of which the case would be representative.
These four validity checks are critical for any case study research and will be
discussed in the context of this dissertation towards the end of this chapter.
6.3.2
Single or multiple case studies
The decision to conduct single or multiple case studies is discussed and
debated in fair detail by numerous authors in the field of case study research
(Yin, 2003: Eisenhardt, 1989: and Flyvbjerg, 2006). Listed as the second myth
in case study research, Flyvbjerg (2006) argues quite convincingly that single
cases can be generalised to confirm and falsify generally accepted facts. He
illustrates the validity of using single cases by referring to Galileo’s rejection of
Aristotle’s law of gravity. The eventual rejection was based on theoretical and
one practical illustration.
Accepting that single case studies are a valid form of case study research, the
focus moves towards the selection criteria that determines whether single or
multiple case studies will be done.
Yin (2003) refers to a four-quadrant matrix (see Figure 6.1 below) that
illustrates the different types of single and multiple case studies:
•
Type 1 case studies refers to single-case holistic designs
•
Type 2 to single-case embedded designs
•
Type 3 to multi-case holistic designs, and
•
Type 4 to multi-case embedded designs.
2008
193
Project Governance for Capital Investments
In order to distinguish between the different designs, and decide which design
is most suitable for a specific situation, a short description of each design is
given below.
Multiple case designs
Context
Single case designs
Holistic
(single unit
of analysis)
Embedded
(multiple unit
of analysis)
Context
Context
Case
Case
Context
Context
Case
Case
Context
Context
Context
Case
Case
Case
Context
Context
Case
Case
Case
Embedded
UoA 1
Embedded
UoA 2
Figure 6.1: Case study design types
Source: COSMOS Corporation, in Yin (2003)
The major decision during case study design is whether to embark on single
(Type 1 and 2) or multiple (Type 3 and 4) case design. Yin (2003) provides
five conditions for single case study research, i.e.:
•
Critical case – used when testing a well-formulated theory,
•
Extreme or unique case – especially in clinical psychology where a
specific case might be so rare that it warrants specific documenting,
•
Representative or typical case – capturing the circumstances and
conditions prevalent in everyday life,
•
Revelatory case – a situation to be analysed that was previously
inaccessible,
•
2008
Longitudinal case – studying the same case at different points in time.
194
Project Governance for Capital Investments
In order to differentiate between the holistic and embedded nature of a case
study, the units of analysis should be considered. For embedded case
studies, the units of analysis might comprise various sub-measurements,
whilst for the holistic case study the examination considers only the overall
program or organisation.
By implication, multiple case studies involve more than one single case. In
general, the evidence of multiple case studies is often more acceptable than
single case studies and is regarded as more robust (Herriott & Firestone,
1983). Multiple case studies can be a mammoth task and care should be
taken to clearly assess the role of each case study in the overall research
objective. According to Yin (2003), in multiple case studies, the focus should
be on replication and not sampling logic. With this argument as the point of
departure, Yin (2003) provides a strong, and differentiating, argument that
sets the context for multiple case study design (and the context for this
dissertation’s case study component). He argues that an important step in the
replication approach is the development of a rich theoretical framework. The
framework should clearly state the conditions under which a particular
phenomenon can be found. This theoretical framework should become the
base or foundation from which generalisations can be made. Furthermore, as
with experimental science, if the empirical results do not work as predicted,
modifications to the theory must be possible. This bears in mind that theories
can be practical and not only academic, something that strengthens the
arguments of Flyvbjerg (2006).
6.3.3
Case study process
The process of case study research is described comprehensively by Yin
(2003). A simple process, incorporating multiple case studies, outlines the key
activities and deliverables in a phased approach. A schematic diagram of the
process is given in Figure 6.2.
2008
195
Project Governance for Capital Investments
The process starts with the development of a basic theory or theoretical
framework. The next step entails a parallel process during which the research
protocol is compiled as well as the appropriate case studies selected. The
design and development of the research protocol is a critical component of the
case study process and is addressed in more detail in the next paragraph.
This is succeeded by the ‘prepare, collect and analyse’ phase, wherein
various cases studies are conducted and the individual reports compiled.
Given the results in the reports, cross-case analysis is done to explain why
similarities and differences between the various case studies were to be
found. The dotted line indicates that there may be situations where certain
findings could have an impact on the fundamental theoretical reasoning and
potential adjustments need to be incorporated before finalisation. In
conclusion, the final theoretical base is established and a final report
produced.
Define & Design
Prepare, Collect & Analyze
Conduct
st
1 case
Write
case
report
Select
cases
Develop
theory
Draw crosscase
conclusions
Modify theory
Conduct
nd
2 case
Write
case
report
Design
data
protocol
Conduct
th
n case
Figure 6.2: Case study process
6.3.4
Analyze & Conclude
Write
case
report
Develop policy
implications
Write crosscase report
Source: COSMOS Corporation, in Yin (2003)
Case study protocol
The case study protocol helps to ensure a consistent, coordinated and
standardised approach to conducting a case study. A well established case
2008
196
Project Governance for Capital Investments
study is of critical importance, especially in multiple case studies (Yin, 2003).
According to Herriott & Firestone (1983), the use of a well defined data
collection process (protocol) increases the reliability of case study research,
especially for multiple cases.
The protocol recommended by Yin (2003) comprises the following key
components:
A.
Introduction to the case study and purpose of the protocol
B.
A.1.
Case study questions
A.2.
Theoretical framework
A.3.
Role of the protocol in guiding the case study
Data collection procedures
C.
B.1.
Names of sites to be visited and contact people
B.2.
Data collection plan
B.3.
Preparation prior to site visit
Outline of case study report
D.
C.1.
Practice in operation
C.2.
Innovativeness of the practice
C.3.
Outcomes of the practice
C.4.
Any attachments
Case study questions
D.1.
Aligned with theoretical framework
D.2.
Evaluation
Although some flexibility is allowed in the case study protocol, the process
provides a standardised method that should guide the case study
investigation in a more uniform manner.
Finally the unit of analysis were:
•
Which of the project governance elements were addressed during the
project?
•
Were the elements handled formally or informally?
•
For those handled informally, would it be advisable to address it formally?
2008
197
Project Governance for Capital Investments
6.3.5
Summary
Even though some criticism towards case study research is still prevalent in
the social sciences research fraternity, overall acceptance of case study
research as a valid form of research has increased since the 1980s. The
increase in acceptance can be attributed to various individuals and
proponents of the case study as a research method. Through their efforts and
experience, researchers established practical methods, processes and
protocols to follow that increase the reliability and rigor of case research.
The validity of case study research begins with a proper definition of the unit
of analysis, followed by the decision to embark on either a single or multiple
case study approach. A properly structured process is recommended, starting
with the development of a theoretical framework, the selection of cases and
the drafting of the research protocol. The actual cases are then studied and
the results compiled into an individual case study report. The various case
results are then cross referenced, analysed and the final report submitted.
During the process, opportunities exist to re-evaluate the theoretical
framework.
For the research protocol, Yin (2003) provides a structured format of how to
establish a standardised case research protocol. The protocol aims to
increase the reliability, rigor and common approach toward case study
research, especially when performing multiple case studies.
The practical guidelines obtained during the literature review of case studies
as research method are used in this chapter to design the research process
for this dissertation. In the following paragraphs, the approach taken to
conduct the case studies for this dissertation is discussed.
2008
198
Project Governance for Capital Investments
6.4
Designing a case study process for this dissertation
As learned from literature, a properly defined research process and protocol
enhances the reliability and rigor of case study research significantly. The
following paragraphs address the most important parameters for case study
design, as explained in the previous paragraphs, in the context of this
dissertation. The parameters include: theoretical framework, unit of analysis,
decision regarding single or multiple cases, protocol design, and the research
process.
6.4.1
Theoretical framework
The theoretical framework forms the anchor and key point of reference for this
research. The initial CPGF was developed from an extensive literature review
of LCP performances and characteristics as well as the evolution of corporate
governance. Further input for the CPGF was obtained from an extensive
Delphi
study,
which
provided
information
from
experienced
and
knowledgeable project practitioners and academics. Eventually four main
areas of assessment were established, namely: (A) Project Steering
Committee, (B) Cost and Benefit Management, (C) Project Reviews, and (D)
Ethical, Responsible Conduct and Conflict of Interest. In completion of this
dissertation, the theoretical framework was updated and finalised in the final
version of the CPGF.
Each area of assessment contains several sub-areas against which
measurements of compliance can be assessed.
6.4.2
Units of analysis
The primary objective of the case studies was to:
Determine the validity of the initial CPGF and identify areas for improvement.
2008
199
Project Governance for Capital Investments
The results were to provide a clear indication in terms of an answer to the
initial research questions, namely:
What should a project governance framework for Large Capital Projects
(LCPs) comprise of?
and
To what extent have project governance principles been applied on LCPs,
formally or informally in LCP cases, and to what extent can the outcomes be
attributed to the presence or absence of governance principles?
The first question was dealt with, to a large extent, during the Delphi study,
while the case studies would provide further inputs to, not only the contents,
but also to the actual extent of application, as intended in the second research
question.
Thus, for the case studies, the units of analysis are:
•
To what extent have the assessment areas, as defined in the CPGF,
been addressed in each case study?
•
Were the assessment areas addressed formally or informally?
•
How important are the assessment areas relative to each other?
•
What should be included in the assessment areas to make the CPGF
content more complete (i.e. what is currently missing)?
The same units of analysis were applied to all the case studies and noted in
each case report.
6.4.3
Single or multiple case studies
Due to the exploratory nature of this dissertation, a multiple / embedded case
study approach was taken. The objective of this dissertation is to establish
something that does not yet exist in its final form (the CPGF), rather that
proving a theory right or wrong. The measurements were taken against the
2008
200
Project Governance for Capital Investments
level of project success or failure and then at a lower level where the
performance against specific CPGF categories were measured.
Due to the sensitive nature of in-depth case study research, some resistance
was to be expected from participants who were involved in cases that were
not that successful. To counter this constraint, a secondary case study
process was launched that studied cases documented in the literature. This
secondary case research attempted to find the root cause of failure or
success and tried to map the likely cause against a specific CPGF
assessment area.
Table 6.1: Case study protocol
Protocol guideline (Yin, 2003)
A
Application to this study
Introduction to the case study and purpose of the protocol
A.1
Case study questions
Case study questions aligned with initial
research
problem
statement,
research
questions and objective, as explained in
Chapter 1.
A.2
Theoretical framework
Rigorous theoretical base portrayed in the
CPGF.
A.3
Role of the protocol
guiding the case study
in A standard approach was established to
ensure reliability and repeatability.
Data collection procedures
B
B.1
Names of sites to be visited List of most senior people on the project
and contact people
(typically
project
steering
committee
members) and the responsible project
manager. Contact information included mobile
phone number and e-mail address.
B.2
Data collection plan
Comprises of literature search on each case
study, personal interviews and opportunity for
response by participants after interviews.
B.3
Preparation prior to site visit
Formal arrangement for meetings and
logistics. Issued formal letters of invitation
(see example in Appendix D). Group sessions
in the form of the NGT with necessary
information forwarded to each participant at
least a week before the session.
C
2008
Outline of case study report
201
Project Governance for Capital Investments
C.1 Practice in operation
C.2 Innovativeness
practice
of
Follow CPGF outline to facilitate discussion
and structure of final report.
the Used formal NGT method. Where allowed,
discussions were recorded digitally.
C.3 Outcomes of the practice
Updated CPGF per assessment area.
C.4 Any attachments
Any additional, complimentary information.
D
Case study questions
D.1 Aligned
with
framework
theoretical As per CPGF.
D.2 Evaluation
6.4.4
Against CPGF assessment areas. Formal
feedback to participants.
Case study protocol
The importance of a case study protocol cannot be over emphasised. Table
6.1 above provides detail of how each component of a typical protocol, as
proposed by Yin (2003), is addressed for the case study exercise in this
dissertation. The protocol was established for the primary case study
research, while the secondary case study research only followed the CPGF
assessment criteria.
This tabulated protocol formed the structure of the primary case studies
conducted in this dissertation.
For the primary case studies, two projects were selected. The first project
comprised an aluminium smelter, namely the Mozal I project in Mozambique.
The project was selected due to its multi-component and cross-border
component (South Africa and Mozambique), as well as because of the
participation by multiple companies from various countries (Japan, Canada,
etc.). The project was acknowledged by the Project Management Institute
(USA) as “Project of the Year, 2001”.
2008
202
Project Governance for Capital Investments
The second primary project was the Lesotho Highland Water Project, which
included multiple dams and water distribution systems. The project was
selected due to the complicated political conditions under which it was
implemented as well as for its multi-country participation. The project was also
easily accessible for the researcher from a logistical point of view.
Apart from the in-depth study into the two primary case studies, a total of 15
secondary cases studies from literature were completed. The purpose of the
secondary case studies was to verify and further validate the contents of the
CPGF.
The primary case studies are discussed in Chapter 7, while Chapter 8
provides a review of the secondary case studies.
2008
203
Project Governance for Capital Investments
Chapter 7: Case Studies – Nominal Group Technique and
Structured Interviews
This section of the research, namely case studies, comprises two main parts.
The first part contains detailed case study reviews through structured
interviews, utilising the Nominal Group Technique (NGT) to arrive at inputs
and adjustments to improve the CPGF content and practical application. The
aim of the first part is thus to further develop the CPGF towards a final
framework for practical application.
The second part, discussed in the next chapter, reviews case studies
available in literature against the CPGF. The aim of this secondary case study
review is to assess whether the case projects applied the concepts of the
CPGF and what the end result was for each case study.
7.1
Case studies utilising NGT
For this part, two case studies were selected. An attempt was made to select
a larger sample with a mix of successful and unsuccessful projects. However,
due to the sensitivities in gaining access to troubled projects and their
information, as well as people being unwilling to discuss poor performance
against a structure CPGF, were problematic. Eventually two large successful
projects were selected, namely the Mozal 1 Project and the Lesotho
Highlands Water Project (LHWP). For the less successful projects, a literature
search was conducted and mini case studies were obtained to test the CPGF
(second part of the case study research).
Each project, with the respective results and input to the CPGF, is analysed in
the following paragraphs. Each starts with a short background, the NGT group
profile and the comments to the CPGF per listed item. For each case study
the overall objectives were to:
2008
204
Project Governance for Capital Investments
•
Assess to what extent the concepts contained in the CPGF were applied
formally and / or informally to each specific case and what the impact
thereof was,
•
Assess what changes and / or refinements are required to the CPGF to
make it more complete, and
•
Rank the components in the CPGF from most important to least
important.
The results of each case study were reviewed and, where necessary,
adjustments and updates were made to the CPGF. The changes proposed
from each case study are given in a separate column in the CPGF.
7.2
Case 1 - Mozal 1
The Mozal 1 project is considered to be a very successful project. Multiple
countries and companies participated in a region unknown for industrial
activity and on its completion the project was presented with the PMI 2001
International Project of the Year award [Mozal Aluminium Smelter, 2001].
The following paragraphs provide a short overview of the project, the NGT
panel with their respective roles in terms of the project and the results applied
to the study.
7.2.1
Project overview
It would be difficult to overstate the importance of the Mozal project’s
accomplishments in Mozambique - a country still recovering from two decades
of civil war. Not only is it the largest industrial project ever undertaken in this
southern African country, it was completed six months ahead of schedule and
approximately US$ 150 million under the originally approved budget of US$ 1
billion. And this after having to cope with delays caused by lack of public
infrastructure, poor geotechnical conditions and a bout of torrential flooding in
February of 2000.
2008
205
Project Governance for Capital Investments
The smelter is built about 17 kilometres outside the capital city, Maputo, on a
site measuring 1.3 million square metres – equivalent to 340 football fields
(Figure 7.1). Its initial production capacity was 245,000 tonnes of aluminium
per year, and the first aluminium was produced in June 2000, a mere 25
months after the project had begun. This is thought to be a world record for a
smelter of this size [Mozal, 2005].
Map of Mozambique showing the city of Maputo
Map showing where the smelter and harbour are located
Figure 7.1: Project location
The project was managed by an SNC Lavalin / Murray & Roberts consortium
for the shareholders, comprising BHP Billiton (47%), Mitsubishi (25%), IDC
(24%) and the Government of Mozambique (4%).
2008
206
Project Governance for Capital Investments
i)
Construction
From mid-1998, virgin bush started to make way for massive earthwork and
piling machinery and clearing the land for the foundations of Mozal began. A
total 25 thousand tons of structural steel formed a skeleton that would be
covered by 208 thousand square metres of aluminium cladding. Thereafter
the installation of mechanical, electrical and instrumentation equipment
followed.
During the course of 1999, a total of 235 thousand cubic metres of concrete
were poured and 25 kilometres of roads were laid.
At the same time, construction of the new berth at the port of Matola was
taking place, including a new access road and bridge that now connects to the
Maputo corridor.
ii)
Creating Jobs
Manpower levels on site for both phases of the project, including contractors
and management staff, reached a total of 15,000 people, 65% of whom were
Mozambicans - confirming that Mozambique was ready to compete at
international level. Over 10,000 people were trained during construction at a
cost of over 8 million US dollars.
iii)
Partnerships
For a large capital project like Mozal, the collaboration and partnering with
utility suppliers is critical. Due to its geographical location, Mozal had to
establish formal partnerships across country borders. This was done by
forming a separate entity in the form of MOTRACO - a publicly owned
electricity company comprising Mozambique (EDM), South Africa (Eskom)
and Swaziland (SEB) - to deliver Mozal's power requirements.
2008
207
Project Governance for Capital Investments
iv)
Economic Impact
Rising from many years of civil war, Mozambique was in dire need of
progressive economic activity. With a crippled economy, Mozal provided a
major injection to country’s economy.
Within the country, Mozal’s share of contribution to GDP was calculated at
3.2% in 2003, whilst overall contribution to the country's economic growth (of
15%) was 5%. With Mozal, Mozambique export earnings increased from US$
220m to around US$ 1 billion, with exports rising in excess of US$ 811 million
in foreign exchange earnings. The net positive impact on external trade
reached a steady state of US$ 400 million. Other significant economic impacts
were:
•
Direct impact of 49% on manufacturing industry gross output
•
Net positive impact on balance of payments of around $100 million at
steady state
•
Direct employment of 1150 people, 1600 contractors and indirect job
creation estimated at 10,000 jobs.
Due to its magnitude and its being ‘first-of a kind’ in Mozambique, the impact
of the project should be viewed in a broader context.
v)
Quality of Life
It is commonly believed that the impact the project has had on the region is
remarkable. The quality of life has been improved on virtually every level and
in such a way that the advantages will continue to be felt long after the
project’s completion. Over 5,500 Mozambicans were trained in construction
skills and all were issued certificates to help them obtain construction work on
future projects. To meet the project’s supply needs, transport infrastructure in
the area had to be improved and increased. A new three-km access road and
a bridge over the Matola River were built and inaugurated in January 2000. In
addition, a new aluminium quay, a raw material handling and storage facility,
2008
208
Project Governance for Capital Investments
and a finished-product export yard were opened at the Matola port in March
that same year.
vi)
Health and Safety
The project team also distinguished itself with an excellent occupational health
and safety record. The overall ‘lost time through injury’ rate was only 1.75 – a
world-class achievement and one made even more remarkable when
contrasted with the South African national average of 10.0. The Mozal
Environmental Management plan, which was developed to World Bank
standards, implemented numerous programs to preserve and protect the
environment. All environmental studies and findings were made fully public
and public feedback meetings on environmental performance at the site were
held every six months.
One of the main criticisms of the project was the handling of HIV and Aids
issues. Initially the impact of HIV and Aids was under estimated – when added
to the (extremely high) occurrence of malaria, the effects were mostly fatal.
Eventually a special malaria unit was opened, which has diagnosed and
treated over 6,600 cases.
Not surprisingly, Mozal has become a showpiece for investment possibilities
in Mozambique and the major focus of attention for neighbouring countries
and visiting dignitaries. Many foreign guests have toured the site, including 14
heads of the Southern African Development Community (SADC) states,
Nelson Mandela, Queen Elizabeth II and several business leaders from
around the world.
7.2.2
Project governance
Given the success and high profile enjoyed by the Mozal 1 project, it was
selected for review and testing of the contents and validity of the CPGF. The
following paragraphs list the NGT participants and their roles on the project,
the review and assessment of the project governance against CPGF and a
2008
209
Project Governance for Capital Investments
few general comments and observations made during the NGT session by the
various participants.
i)
NGT profile for Mozal 1 case study
According to Yin (2003) the validity of a case study is very much dependent
on the quality and multiplicity of case information sources. For Mozal 1, the
key participants for the investor, contractors and government were involved.
Back-up information as well as proof of documentation and claims are
available through the BHP Billiton Documentation Centre and can be
accessed upon motivation by the author. Further validation was done through
a search on the Probe International website (www.probeinternational.com) to
determine whether there were any investigations or legal actions on the
project. Nothing was found. The structure of information is illustrated below in
Figure 7.2.
The participants on the NGT session for the Mozal 1 case study were senior
members of the project sponsor and contracting parties. In addition to the
researcher, who acted as facilitator, the team included the following people
(listed with the positions they held during the project):
•
Mr Rob Barbour – Project Director and chairman of the steering
committee (BHP Billiton)
•
Mr Peter Cowie – In-country Manager responsible for government /
community liaison (BHP Billiton)
•
Mr Brett Hegger - Project Manager for SNC Lavalin / Murray and Roberts
Joint Venture
•
Mr Terrence McGowan – Senior Project Consultant to large capital
projects (Independent)
•
Mr H.E. Dombo – Head of Industrial Free Zones & Special Projects
Division, Investment Promotion Centre of Mozambique
•
Dr Domingo Chiconela – Quality and Environmental Control for
Mozambique Government
2008
210
Project Governance for Capital Investments
Contractor: (SNC
Lavalin / Murray and
Roberts)
Generally available
literature
Investors: (BHP
Billiton)
Mozal 1
Case Study
Government:
(Mozambique)
Legal cases and
investigations
Supporting Project
Information (BHP
Document) )Centre)
Figure 7.2: Case study sources of information
The purpose and contents of the NGT session were emailed to each
participant one week before the session to allow for preparation.
Not all parties were able to attend the session and it was decided to proceed
on the scheduled NGT date and follow-up with structured interviews with
those that could not attend.
The NGT session commenced at 14h00 and closed at 18h00 on 20 March
2007. The session was attend by all parties accept the Mozambican
delegation of Mr Dombo and Dr Chiconela. The venue was the conference
room at the Graduate School of Technology Management, University of
Pretoria. The proceedings were recorded digitally.
The outcome of the NGT session was used to facilitate structured interviews
with the two government delegates. The structured interviews with Mr Dombo
and Dr Chiconela were conducted at the Polana Hotel, Maputo on 1 and 2
November 2007, respectively.
2008
211
Project Governance for Capital Investments
ii)
Project Governance at Mozal 1 against the CPGF
After discussing the background of the Mozal project and again emphasising
the objectives of the NGT process, the CPGF was projected against an
overhead screen and an additional column inserted to indicate the comments
and results of the discussions. By viewing the insertions and changes, the
NGT participants could immediately indicate their approval of the changes. All
changes and additions are indicated in italic bold. Where no comments are
given and the phrases are merely copied in italic, the NGT panel agreed with
the phrases as documented.
The result of the session is provided in Table 7.1 below, with special attention
drawn to the last column.
2008
212
Project Governance for Capital Investments
Table 7.1: Concept project governance framework
P. Project Governance
A. Project Steering
A. Project Steering Committee
Committee
Mozal 1
1. Composition
2. Responsibility
2008
1. Core Competencies
•
Project finance and
cost management
•
Business / project
alignment
•
Front-end-Loading
management
•
Crises response
•
Industry knowledge
•
International
experience
•
Leadership
•
Strategic alignment
capability
•
Contract management
capabilities
1. Core Competencies
•
Project finance
•
Project control management
(Cost / Time)
•
Risk assessment and
contingency management
•
Business / project alignment
•
Upfront management of the
project and scope robustness
•
Crises response, including
conflict management
•
Industry knowledge
•
International experience
•
Leadership
•
Strategic alignment capability
•
Contract management
capabilities
•
Stakeholder management
•
Political influence
•
Country and local
knowledge
•
‘Project Champion’
•
Local legal requirements
2. Steering Committee Size
Determined by project type,
complexity and magnitude
2. Steering Committee Size
Determined by project type,
complexity and magnitude
Sub-committees - purchasing,
finance, audit, social, etc.,
reporting to Steering Commitee
3. Member Mix
Comprise members with a
direct interest as well
indirect stakeholder
representatives i.e. socioeconomic and
environmental
3. Member Mix
Comprise members with a direct
interest as well as indirect
stakeholder representatives i.e.
socio-economic and environmental
(establish appropriate forums to
deal with ‘other’ stakeholders)
4. Chairperson Independent
The chairperson should be
independent from any
project stakeholders
4. Chairperson Independent
The Chairperson should be
independent from any project
stakeholders (for public projects
not private projects - see note 1)
1. Committee Accountability
•
Overall accountability
•
Bridging the gap
between project and
1. Committee Accountability
•
Project promotion and
stakeholder enablement
•
Obtaining finance
213
Project Governance for Capital Investments
immediate external and
statutory environment
3. Audit
Committee to
Board of
Directors
(replace Board
of Directors
with Sponsor
Boards)
Establish levels of authority
Overall accountability
•
Bridging gap between project
and immediate external and
statutory environment.
Team development
•
2. Charter
Development and
adherence to the project
charter
2. Charter
Development and adherence to
project charter, including project
policies
1. Levels of Independence
The project audit committee
should be independent,
with the steering committee
excluded from the audit
committee
1. Levels of Independence
The project audit committee should
be independent, with the steering
committee excluded from the audit
committee
2. Project Literacy
The Audit Committee
should have extensive
project experience on all
aspect of large capital
projects
2. Project Literacy
The auditors should have
extensive project experience on all
aspects of large capital projects
B. Cost and Benefit
Management
1. Financial
Reporting
Responsibility
•
3. Scope of the auditors to be
vetted by the steering committee
B. Project Finance and Controls
1. Steering Committee
Report against approved
budget
1. Project Governance Charter
Report on adherence to the
charter and key performance
indicators
2. Project Governance
Charter
Report on adherence to the
charter
2. Steering Committee
Establish reporting structure,
priorities and format
3. Report against approved
budget
2. Financial
Disclosures
2008
1. Project Finance
For any financial activities
outside the GAAP
requirements, full
disclosure will be required
1. Project Finance
For any financial activities outside
the GAAP requirements, full
disclosure will be required
2. Reports
Project financial status to
be reported on a quarterly
basis
2. Reports
Project financial status to
reported on a quarterly basis
3. Corrections and
Adjustments
3. Corrections and Adjustments
To be reported quarterly
be
214
Project Governance for Capital Investments
To be reported quarterly
3. Internal
Controls
1. Risk Management
Process
Formal risk management
process should be in place
1. Risk Management Process
Formal risk management process
should be in place
2. Risk Management
The steering committee
must actively ensure that
proper risk identification,
quantification and mitigation
planning is done on the
project, but covering all
aspects of the project, not
only financial.
2. Risk Management
The steering committee must
actively ensure that that proper risk
identification, quantification and
mitigation planning is done on the
project, but covering all aspects of
the project, not only financial and
cost.
Impose risk management to be
done by all stakeholders.
3. Risk Disclosure
Disclosures must be made
about all the risks on the
project during the total
project life-cycle.
3. Risk Disclosure
Disclosures must be made and
prioritised about all the risks on the
project during the total project lifecycle.
4. Risk Certification
Requirement for monthly
certification of disclosure
controls and procedures by
the chairperson of the
steering committee.
4. Risk Certification
Requirement for monthly
certification of disclosure controls
and procedures by the
Chairperson of the steering
committee.
C. Project Reviews and
Audits
1. Independence
2008
C. Project Reviews and External
Audits
1. Objectivity
Independence and
objectivity of the project
auditors and reviewers
must be ensured.
1. Objectivity
Independence and objectivity of
the project auditors and reviewers
must be ensured.
2. Scope
Project reviews and audits
should not be confined to
adherence to in-house
methodologies and
practices, but should
include items that the
review / audit deems
necessary to protect
stakeholder interests.
2. Scope
Project reviews and audits should
not be confined to adherence to inhouse methodologies and
practices, but should include items
that the review / audit deems
necessary to protect stakeholder
interests.
3. Rotation
Auditors should have no
direct or indirect interest in
the project or in the
3. Rotation
Auditors should have no direct o
indirect interest in the project or in
the contractors / suppliers involved
215
Project Governance for Capital Investments
contractors
/
suppliers with the project.
involved with the project.
2. Interaction
with Companies
1. Internal Charter
The internal charter should
include the approach
towards the auditing of
project management, the
adherence to project
methodologies, processes
and agreed practices and
the project team’s
functioning.
1. Internal Charter
The internal charter should include
the approach towards the auditing
of project management, the
adherence to project
methodologies, processes and
agreed practices and the project
team’s functioning.
2. Communication
As
with
corporate
governance, it requires
mandatory communication
between
the
external
auditor and the audit
committee.
2. Communication
As with corporate governance, it
requires mandatory communication
between the external auditor and
the audit committee.
3. New
Attestation
Report
1. Report
External auditor must issue
an attestation report on the
project’s internal control
report.
1. Report
External auditor must issue an
attestation report on the project’s
internal control report.
4. Disclosure
1. Non-audit services
As with corporate
governance, it is required
that separate disclosures of
the amounts paid to the
external auditor for nonaudit services is provided,
together with a detailed
description of the nature of
services. ?
1. Non-audit services
As with corporate governance, it is
required that separate disclosures
of the amounts paid to the external
auditor for non-audit services is
provided, together with a detailed
description of the nature of
services.
?
2. Fees
Requires disclosure of fees
paid to a company’s
principal external auditor
since project
commencement.
2. Fees
Requires disclosure of fees paid to
a company’s principal external
auditor since project
commencement.
1. Code
2008
D. Ethical, responsible
conduct and conflict of
interest
D. Ethical, responsible conduct and
conflict of interest
1. Standards
A code of ethics should be
established and signed by
each member of the
steering committee. The
1. Standards
A code of ethics should be
established and signed by each
member of the steering committee.
The code should include (as a
216
Project Governance for Capital Investments
code should include (as a minimum):
minimum):
•
Environment
•
Environment
•
Social aspects
•
Social aspects
•
Socio-economic aspects
•
Socio-economic
•
Conflict of interest guidelines
aspects
•
Conflict of interest
guidelines
2. Adherence
Adherence to the code of
ethics should be disclosed
and reported on a monthly
basis.
2. Adherence
Adherence to the code of ethics
should be disclosed - and reported
on a monthly basis.
3. Disclosure
Code should be made
publicly available and any
changes to the code or
waivers from the code must
be disclosed.
3. Disclosure
Code should be made publicly
available and any changes to the
code or waivers from the code must
be disclosed.
2. Compensation
1. Performance
Performance-related
elements of compensation
should represent a
substantial portion of the
total compensation
package.
1. Performance
Performance-related elements of
compensation should represent a
substantial portion of the total
compensation package. (See
Note 2).
3. SHE
1. Adherence
SHE requirements should
be to international standard
as a minimum and
supplemented by host
country requirements.
1. Adherence
SHE requirements must be set and
formalised, taking into
consideration world best practices
and host country conditions and
legislation. (See Note 3).
4. Social
1. Adherence
Social and socio-economic
considerations should be to
international standard as a
minimum and
supplemented by host
country requirements.
1. Adherence
Social and socio-economic
considerations must be set and
formalised, taking into
consideration world best practices
and host country conditions and
legislation.
Notes to input:
Note 1 - For privately funded projects, the chairperson will almost always be
from the main sponsoring entity. Independence of the chairperson
to the steering committee will not be likely in privately funded
projects.
2008
217
Project Governance for Capital Investments
Note 2 - It was strongly believed by all participants that a significant portion
of remuneration should be performance based.
Note 3 - One of the shortcomings of the Mozal 1 project was the initial lack
of planning for HIV / Aids education and treatment. It was strongly
advised that these issues be formally addressed, in accordance
with international and local best practices.
With respect to the formal and / or informal application of project governance
on the Mozal 1 project, nearly all aspects were addressed, but mostly done
informally. The only items addressed formally were:
•
Auditing procedures and functioning of the audit committee
•
All aspects related to projects control.
All other governance items were attended to, but were not formalised during
the project initiation stages.
On the question of which items in the CPGF are the most important and how
the items should be ranked, the unanimous response was that this is
impossible to say and that prioritisation will differ depending on the type and
location of the project.
Apart from addressing the specific NGT protocol questions, some significant
comments about project governance in general were made. These items are
discussed in the next paragraph.
iii)
General observations from NGT participants
The NGT session on the Mozal project took longer than expected and
triggered some important observations from the participants. The most
important observations that could have an impact on formalising a final PGF
are listed below:
•
The NGT panel agreed that a governance environment for the project
manager to function within is usually lacking on LCPs. Thus, the
necessity for a formal approach towards project governance cannot be
2008
218
Project Governance for Capital Investments
disputed and current theories and practices do not cater for these
practices.
•
Although the Mozal 1 project was a success, project governance was not
applied formally in the format proposed in the CPGF. However, most of
the items were addressed because of the high level of experience and
skill of the senior managers on the project. It was unanimously agreed
that a formal project governance framework and guideline would have
helped and would have shortened the time spent in addressing the most
important items.
•
An item that was discussed at length was the core competency of ‘scope
definition’. It was stated that the proper and accurate definition of scope,
especially technical scope, should not be hastened. In the case of Mozal
1, the smelter technology was proven and defined in detail, which was a
major attribute in successful execution.
•
The most important factor on any project is the quality and capability of
the people working on the project. The success of the Mozal 1 project
can be attributed to the people who lived the informal ethical and
responsible conduct of the project. With the correct mindset and attitude
many of the formalities will not be necessary, but unfortunately the luxury
of employing the A-team does not always prevail, and for this reason a
formal project governance framework is required.
iv)
General comments from structured interviews
The structured interviews with the two Mozambican delegates followed the
same protocol as the NGT session with the only provision being that the
outcome of the NGT session was used to facilitate the interviews. The
following comments were provided by the interviewees:
•
The Mozal 1 management structure and steering committee are
considered to be the “model” against which Mozambique measures itself
when pursuing future projects. From a government perspective proper
representation should be evident from all the relevant departments,
especially Labour, Environment, Trade and Industry, Finance, Health
2008
219
Project Governance for Capital Investments
and Foreign Affairs. Day-to-day matters should be handled in work
groups with only selective report back to the steering committee.
•
Project Charter - important, although common understanding prevailed at
Mozal 1.
•
Project Reviews and Audits – more of a concern to the investor.
•
The Mozambican government holds less than 5% share in the venture
and major tax incentives that were granted. The Mozambican
government was desperate to attract the investment and, with hindsight,
‘gave too much away’. A recommendation was that a PGF should
consider a stipulation of a minimum 10% shareholding for the host
country where projects involve the developed world investing in
developing countries.
•
A major concern was raised regarding sustainable development. Due to
contractual supply agreements Mozal cannot supply product to local
downstream companies resulting in their having to import steel at high
prices. This caused a dampening effect on the sustainable development
of new downstream companies in Mozambique. A PGF should include
specific provisions for sustainable development.
In summary, the NGT panel and interviewees on the Mozal 1 project
unanimously agreed that a formal framework for project governance would
greatly assist the senior management and project steering committee on large
capital projects to create an environment for effective project management.
Information received during the interviews confirmed two important aspects of
the research:
•
The structure and content of the proposed CPGF are, to a large extend,
sufficient for application to large capital projects. Adjustments were made
to some wording and the different needs between private and public
investments with respect to board representation, but in general there
where overwhelming support from all participants for the current CPGF
outline.
•
From the response and feedback received is became clear that a formal
PGF could greatly assist is formalising project governance and that such
2008
220
Project Governance for Capital Investments
a formal framework is missing in project literature, theory and even
legislation.
Clearing the comments received during the Mozal I case study preparations
were made for the second primary case study, namely the Lesotho Highlands
Water Project.
7.3
Lesotho Highlands Water Project (LHWP)
The LHWP is a good example of a cross-border LCP. The project was
initiated in 1986 under difficult and hostile conditions between the RSA and
Lesotho. During this time, SA was still under Apartheid Rule, with strong
international sanctions imposed on the country, while Lesotho found itself
under military rule. While both countries were subjected to the wrath of the
international community, the governments of SA and Lesotho were also at
political loggerhead.
Despite these conditions, the project was initiated and governed by a Treaty
(Treaty, 1986) compiled by the two governments.
The following paragraphs provide an overview of the project history, the lifecycle and specifically the application of project governance principles, as well
as the impact of the Treaty on promoting project governance.
7.3.1
i)
Project history and life-cycle
Project overview
The Orange (Sengu) River rises in the mountainous region of Lesotho,
traversing in a generally westerly direction nearly 2000 km to the Atlantic
Ocean and being joined half-way by the Vaal River coming in from the northeast [LHWP, 2005].
Although the mountainous region of Lesotho constitutes only 5% of the total
catchment area of the Orange River, it provides about 50% of the total
2008
221
Project Governance for Capital Investments
catchment run-off. The water is characterised by good chemical quality and
low sediment content.
The topography of the region allows for the possibility of developing a
hydropower generation facility in Lesotho in conjunction with the provision of
water supplies to the RSA (Figure 7.3).
In order to exploit this huge potential in water conservation and power
generation, the LHWP was initiated more than 50 years ago.
ii)
Project objectives
The project was launched with the following clear objectives:
•
To provide revenue to Lesotho by transferring water from the catchment
area of the Orange River in Lesotho to meet the growing demand for
water in the RSA's major industrial and population centres.
•
To generate hydroelectric power for Lesotho in conjunction with the
water transfer.
•
To promote the general development of the remote and under-developed
mountain regions of Lesotho.
•
To provide the opportunity to undertake ancillary developments, such as
the provision of water for irrigation and potable water supply.
2008
222
Project Governance for Capital Investments
Figure 7.3: LHWP
iii)
Lesotho's water resources
Water is a resource that Lesotho has in relative abundance and water
resources far exceed possible future requirements, even allowing for possible
future irrigation projects and for general development and improvement of
living standards. The sustainability of the water resource was well researched
and documented.
The average total available water in Lesotho is about 150m3/s and current
national consumption is not more that 2m3/s.
Estimates of the natural mean annual run-off at the sites of the main project
are provided below in Table 7.2 (Water availability).
2008
223
Project Governance for Capital Investments
Table 7.2: Water availability
Dam
River
Catchments
Mean Annual
2
Run-Off
3
Area km
m3/s
km
Katse
Malibamats'o
1 860
656
20.8
Mohale
Senqunyane
938
367
11,6
Mashai
Orange / Sengu 7 977
1 569
49.7
Tsoelike
Orange / Sengu 10 375
1 891
59.9
The Katse and Mohale dams formed part of the first phase and, as can be
seen from the run-off figures, the potential for water capacity increase during
Phase II is enormous relative to the previous capacity.
iv)
Preliminary studies
The initial survey of the water potential of Lesotho was first introduced by the
then British High Commissioner to Lesotho, Sir Evelyn Baring, in the 1950s.
Ninham Shand of South Africa was appointed as consulting engineer to study
the potential of harnessing the water from the Maluti Mountains for the
economic benefit of the Basotho people.
A study of the Oxbow project was undertaken for the Government of Lesotho
from 1967 to 1968 (Ninham Shand and Partners, 1968 from LHWP, 2005).
The study envisaged storage reservoirs at Oxbow and Pelaneng on the
Malibamats'o River with tunnels running northward to convey water to South
Africa. In 1971 the Government of Lesotho (GOL) commissioned a further
study (Binnie & Partners, 1971, from LHWP, 2005), which concluded that a
94m high Pelaneng dam could be constructed to divert a continuous supply of
8m³/s to South Africa.
In 1974 the RSA appointed Henry Olivier and Associates to carry out studies
in connection with water and power projects in neighbouring countries. In a
report submitted to the RSA in 1977 (Henry Olivier and Associates, 1977,
from LHWP, 2005), ten alternative layouts for diversion of water from Lesotho
to the Vaal basin, and for possible hydroelectric projects associated with such
projects, were described.
2008
224
Project Governance for Capital Investments
v)
Joint preliminary feasibility study
A joint preliminary feasibility study of the project was carried out in 1978, with
each government appointing its own consultants to assist in the study. A
preliminary feasibility report (Olivier and Binnie, 1979, from LHWP, 2005)
concluded that a constant flow of some 35m³/s could be transferred to South
Africa using a phased construction of five reservoirs at Oxbow, Pelaneng,
Soai, Polihali and Taung on the Malibamats'o and Senqu (Orange) Rivers
plus approximately 102km of tunnel to transfer water to SA. The generation of
hydroelectric power in Lesotho was an integral part of the project proposal.
vi)
Joint detailed feasibility study
The detailed feasibility studies, to suit the requirements of the two
governments, were carried out from August 1983 to December 1985 by
Lahmeyer MacDonald Consortium (comprising Lahmeyer International of
Germany and Sir Malcolm Macdonald of the UK) for GOL and Olivier Shand
Consortium (comprising Henry Olivier and Ninham Shand Inc.) for RSA. The
GOL’s interests in the technical review field were looked after by the LHWP
unit who were assisted by TAMS Pty (Ltd) of the USA. The LHWP unit and
TAMS together formed the Study Supervisor for GOL on the feasibility study
from 1983 to 1986.
The main objectives of the feasibility study were:
•
Selection of the optimal scheme layout acceptable to both governments.
•
Demonstrating that the project would be technically, socially, legally,
environmentally, economically and financially viable.
•
Carrying out of studies, designs and costing that would be used for
purposes of preparation of tender designs and associated investigations.
The feasibility study established the economic viability of the project to deliver
about 70m³/s of water from the highlands of Lesotho to the Vaal River system
by the year 2020. The project was to be developed in a number of phases and
2008
225
Project Governance for Capital Investments
the project was found to be the cheapest option compared to other competing
schemes in RSA.
Hydroelectric power was to be generated in Lesotho, which offered Lesotho
the opportunity for a substantial element of independence in terms of
electricity supplies.
The study confirmed that there were no technical, social, environmental, legal,
economic or financial considerations that would invalidate the conclusions that
the recommended project would provide considerable benefits for both
countries. This observation prompted no further detailed investigation into
these aspects, a decision that resulted in some legal repercussions at a later
stage.
The recommended feasibility study Phase 1A project components were as
follows:
•
Main Dam and appurtenant works at Katse
•
48 km long Transfer Tunnel from Ha Rafanyane to Sentelina
•
Sentelina Head Pond
•
Underground Hydropower Plant
•
Tlhaka Tail Pond
•
Delivery Tunnel
•
Infrastructure facilities, including access roads, construction camps,
construction-power, communication and other services.
An independent 3-member international panel of engineering experts was
engaged by Lesotho from January 1984 to February 1986 to review the
feasibility study work. During this period, the panel made three visits to
Lesotho and to the project sites.
vii)
LHWP implementation
The signing of the Lesotho Highlands Water Project Treaty by the
governments of Lesotho and of the RSA on the 24th October 1986 (Treaty,
1986) established the Joint Permanent Technical Commission (JPTC) to
2008
226
Project Governance for Capital Investments
represent the two countries in the implementation and operation of the LHWP.
This Treaty (1986) effectively spelled out governance arrangements between
the two countries and will be discussed in more detail in later paragraphs. This
was followed by detailed engineering studies and services prior to the award
of main works, which were scheduled to commence in early 1990. The treaty
commits RSA and Lesotho to implementation of Phase 1A and 1B of the
project and provides the options for development of additional phases in the
future.
The first phase (1A) of the proposed four phased scheme, comprising: a giant
dam at Katse in the central Maluti mountains, an 82 km transfer and delivery
tunnel system reaching to the Ash River across the border in RSA, the 'Muela
hydropower station and associated structures was commissioned in 1998.
This has now been completed and an average 17m3/sec of water is now
being delivered to RSA. The total cost of this phase was R11 billion.
Phase 1B, comprising the Mohale dam, a 145 meter high concrete faced
rockfill dam on the Senqunyane River some 40 km south-west of Katse, a 32
km long transfer tunnel between Mohale and Katse reservoirs, a 19m high
concrete diversion weir on the Matsoku River, and a 5.6 km long tunnel, are
under construction. The Mohale reservoir and Matsoku diversion added 9.5
and 2.2 m3/sec to the yield of Katse. The total cost of this phase was
estimated at R6.5 billion.
viii)
Main construction and contracting parties during Phase I of the LHWP
Various contractors were deployed during the Phase 1A and 1B of the project.
With this project it is important to list the most prominent contracting parties
because of the fact that some irregularities took place during the project that
resulted in various court cases for bribery and prominent companies being
suspended and blacklisted by the World Bank.
During Phase IA, the following main construction activities took place:
2008
227
Project Governance for Capital Investments
•
Katse dam
•
45 km Transfer Tunnel
•
'Muela Hydropower Station and Tail Pond
•
15 km Delivery Tunnel –south
•
22 km Delivery Tunnel –north.
The Katse Dam was built by the Highlands Water Venture (HWV) consortium,
comprising Hochtief (Germany), Impreglio, Bouygues (France), Stirling
International (UK), Kier International (UK), Concor (South Africa) and Group
Five (South Africa). The Lesotho Highlands Project Contractors, which built
the tunnels in Lesotho, was made up of Spie Batinolles, Balfour Beatty (UK),
Compenon Bernard (France), LTA (South Africa), Acres (Canada) and ED
Zublin (Germany).
For the building of the 'Muela Hydropower station and the Tailpond dam, the
Lahmeyer MacDonald Consortium (LMC), comprising Lahmeyer (Germany)
and Mott MacDonald of the United Kingdom, were appointed. They also
supervised the two delivery tunnels.
The two transfer tunnels were contracted to the Lesotho Highlands Project
Contractors consortium comprising Spie Batignolle (France), Balfour Beatty
(UK) LTA (South Africa), Campenon Bernard (France) and Ed Zublin
(Germany). The electrical and mechanical work was subcontracted to Neyrpic
(France) and SDEM (SA). Deutsche Babcock (SA) supplied steel liners for the
under-river crossing, while Krohne Altometer of the Netherlands supplied flow
metres in the delivery tunnel south.
vi)
Main construction and contracting parties during Phase II of the LHWP
During Phase II, the following main construction activities took place:
•
Mohale Dam
•
Mphale / Katse interconnecting tunnel
•
Matsoku Weir and Tunnel, and
•
Mohale Access roads
2008
228
Project Governance for Capital Investments
For the Mohale Dam, comprising a 145m high concrete face rock-fill
embankment, the Mohale Consultants Group (MCG) - comprising SMEC
(Snowy Mountains Engineering Corp) of Australia, BKS Inc, Melis & Du
Plessis and Stewart Scott (SA), Harza Engineering (USA) and Nippon Koei
Co (Japan) - were contracted.
MCG supervised Mohale Dam Contractors, a joint venture of Impregilo of
Italy, the lead contractor, with Hochtief (Germany) and Concor (South Africa).
Concor Engineering and ATB Joint Venture were sub-contracted to undertake
mechanical and engineering activities.
For the 32km long Mohale Interconnecting Tunnel to Katse, the Lesotho
Highlands Tunnel Partnership (LHTP) was the design and supervising
consultant. The team comprised: Lahmeyer (Germany), Mott Macdonald (UK)
and Consult 4 of RSA (comprising Ninham Shand, VKE (Van Niekerk Klyn
and Edwards), Keeve Steyn and SRK (Steffen Robertson and Kirsten) and
Knight Piesold). The contractors comprised a joint venture of Hochtief
(Germany), contract leader Impreglio (Italy) and Concor (SA). Concor
Engineering was sub-contracted to the mechanical and engineering activities.
The Matsoku Weir and Tunnel were designed and supervised by consultants
under the Matsoku Diversion Partnership, whose composition was Consult 4
(SA) comprising: Ninham Shand, VKE Engineers, SRK Consulting and Knight
Piesold in a joint venture with the Lescon/ FMA of Lesotho. The construction
team, Matsoku Civil Contractors (MCC) comprised a joint venture of Concor
(RSA), Hotchtief (Germany) as contract leader, and Impregilo (Italy). Concor
Engineering of SA and B&W Electrical were awarded sub-contracts in the
mechanical and electrical fields respectively.
Finally, the Mohale Access roads were designed and supervised by GIBB
(Lesotho) / BS Bergman (RSA) and contracted to LTA / Group 5 Joint
Venture.
2008
229
Project Governance for Capital Investments
7.3.2
Project governance
The LHWP was a true cross-border project with the approach that no
taxpayers’ money, or any other form of subsidisation, should be used. The
intention was that end-users should eventually fund the project and that
objective was, to a large extent, achieved with limited funding made available
by the World Bank during Phase 1B. The LHWP can be regarded as
successful it terms of delivery on time, to pre-established capacity and by end
April 2007 the cost over expenditure was an ‘acceptable’ 10% overrun over
the 20 year project life.
As opposed to the Mozal 1 project, much time was spent on establishing biliteral and governance policies and agreements. The following paragraphs
provide not only a review with respect to the CPGF, but also an explanation of
how governance was addressed during project initiation and managed
throughout the project life-cycle.
i)
NGT profile for LHWP Phase 1A/B case study
As with the Mozal 1 case study, an attempt was made to obtain information
from
multiple
sources.
Apart
from
representation
from the various
stakeholders, general literature was searched and a listing of investigation
and court cases was obtained through Probe International and actual project
documentation was viewed (see Figure 7.4). The only stakeholders not
present were the contractors, who were hesitant to participate in anticipation
of future work on Phase 2.
2008
230
Project Governance for Capital Investments
South African
panel
Lesotho panel
LHWP
Case
Study
Generally
available
literature
Supporting
Project
Information (BHP
Document
Legal cases and
investigations
Figure 7.4: LHWP information sources
The NGT panel that participated comprised of senior managers and directors
of various stakeholders of the project. The NGT panel showed great interest in
this exercise, with the acting CEO of the LHWD attending the whole session.
In addition to the researcher, who acted as facilitator, the participants included
the following people (listed together with the positions they held during the
project):
•
Mr Masilo Phakoe – acting Chief Executive Officer for LHDA
•
Mr Pieter Swart – Financial Controller for LHWC, RSA Delegation. Mr
Swart has been involved with the project for 16 years.
•
Mr Leon Tromp – Alternate Delegate for LHWC, RSA Delegation. Mr
Tromp has been involved with the project for 22 years and is the author
of two sections of the Treaty. Mr Tromp oversaw the technical
developments at senior level.
•
Mr B.T. Khatibe – CFO for LHWC, Lesotho Delegation.
•
Mr Charles Mwakalumbwa – Company Secretary, LHWC.
The purpose and contents of the NGT session were emailed to each
participant one week before the session to allow for preparation.
The NGT session commenced at 09h00 and closed at 13h00 on 2 April 2007.
The venue was the conference room at the LHWC Board Room, Standard
2008
231
Project Governance for Capital Investments
Bank Building, Maseru, Lesotho. Due to sensitivity, the proceedings were not
digitally recorded.
ii)
Project governance at LHWP Phase 1A/B
After discussing the background of the LHWP project, and again emphasising
the objectives of the NGT process, Mr Tromp suggested an overview of how
governance was established on the project in 1986, how it was amended in
1999, and the lessons learned. Afterwards the CPGF was projected against
an overhead screen and an additional column inserted to indicate the
comments and results of the discussions. By viewing the insertions and
changes, the NGT participants could immediately indicate their approval of the
changes. All changes and additions are indicated in italic bold. Where no
comments are given and the phrases are merely copied in italic, the NGT
panel agreed with the phrases as documented.
Formulating governance on the LHWP
Due to the complexity of cross-border projects, and especially the difficult
political conditions RSA and Lesotho found themselves in during the 1980s,
much effort went into compiling the governance principles. It is not clear
whether the hostility between the two countries benefited or hampered the
development of a governance document in the form of the Treaty (1986).
Nevertheless, the end result was a well documented agreement intended to
be valid for 50 years. The drafting of the Treaty took approximately 18 months
and contains a clause for review after 12 years (1999).
The Treaty clearly spells out the formal relationships between the various
stakeholders as well as key responsibilities and accountabilities. Although it is
not the intention of this dissertation to review the complete document,
attention should be given to the formal organisational structure and reporting
lines. The function of the structure had limitations and was about the only
aspect of the Treaty that was substantially changed in 1999. The original
structure had a negative impact on the manageability of the project, a key
element of this research.
2008
232
Project Governance for Capital Investments
The original organisational structure is given below in Figure 7.5. The
structure provides for independent, parallel reporting lines from the
implementation agencies, LHDA and Trans Caledon Tunnel Authority (TCTA),
to the respective governments as well as via the JPTC.
Government of
Lesotho (GoL)
Government of
South Africa
(GoSA)
JPTC
TCTA
LHDA
Reporting lines
Figure 7.5: Original governance structure
As per Article 7, paragraph 1 of the Treaty (1986), the LHDA “shall have the
responsibility for the implementation, operation and maintenance of that part
of the Project situated in the Kingdom of Lesotho, in accordance with the
provisions of this Treaty, and shall be vested with all powers necessary for the
discharge of such responsibilities”.
Similarly, for the South African section, Article 8, paragraph 1 of the Treaty
(1986), the TCTA “shall have the responsibility for the implementation,
operation and maintenance of that part of the Project situated in the Republic
of South Africa, in accordance with the provisions of this Treaty, and shall be
vested with all powers necessary for the discharge of such responsibilities”.
2008
233
Project Governance for Capital Investments
The JPTC was established to serve as the combined governing body
reporting to the main stakeholders, namely GoL and the government of SA
(GoSA). In the context of the study, the JPTC can be considered as the
‘steering committee’. As per Article 9, paragraph 1 of the Treaty (1986), the
JPTC “was composed of two delegations, one from each Party (LHDA and
TCTA). Each Party shall nominate three representatives constituting its
delegation,
as well as an alternative for each of the nominated
representatives. At least one member of each delegation shall be permanently
resident in Maseru. Each delegation shall alternately nominate a chairman for
meetings of the JPTC”.
The governance structure depicted in Figure 7.3 was operational from
inception in 1986 until 1999 when it was due for review. From the NGT, panel
the following shortcomings and main areas for improvement were identified:
1)
Due to the dual reporting structure, there were often conflicting
messages conveyed to the respective governments.
2)
Decision-making and turnaround time for major queries took between 10
and 12 days.
3)
The function of the JPTC was marginalised due to the direct access of
LHDA and TCTA to their respective governments.
Reviewing governance on the LHWP
During 1999, the governance arrangements, as described in the Treaty
(1986), were reviewed against the experience gained over a 12 year period.
Given the areas for improvement identified, revised arrangements were
promulgated under Protocol VI to the Treaty on the LHWP (1999). The
changes resulted in:
Article 1 - Definitions
Article 2 - Changing the name of the JPTC
Article 3 - Restructuring the functions, powers and obligations of the LHDA
Article 4 - Institutional arrangements in the RSA
Article 5 - Restructuring the functions, powers and obligations of the LHWC
Article 6 – The prevention and settlement of disputes
Article 7 – Privileges and immunities
2008
234
Project Governance for Capital Investments
Article 8 – Entry into force
For the purpose of this research, the changes contained in Articles 2, 3 and 5
will be described.
The changes proposed in the Protocol VI (1999) resulted in a change to the
governance structure, as provided in Figure 7.6 below.
The JPTC was renamed the Lesotho Highlands Water Commission (LHWC)
and became the overall governing body with equal representation for the two
respective governments as well as LHDA and TCTA. A single line of reporting
was established via LHWC. The role of TCTA was redefined as maintenance
and operations on the South African side while LHDA continued
implementation and maintenance / operations activities in Lesotho.
Government of Lesotho
(GoL)
Government of South Africa
(GoSA)
Lesotho Highlands Water Commission (LHWC)
Sub - Committees
LHDA
TCTA
Reporting lines
Figure 7.6: Revised organisation for improved governance
According to the NGT group, the new structure resulted in:
•
A decision turnaround time of 3 to 4 days, and
•
No conflicting messages to the respective governments.
2008
235
Project Governance for Capital Investments
Some criticism was received regarding the effectiveness of the LHDA Board,
with a separate enquiry launched in 2005. The actual capability of the LHDA
Board members was questioned and the draft report by Philip Armstrong
(2005) recommended the inclusion of LHWC board members on the LHDA
board to assist with the managerial problems, but the overall structure and
defined responsibilities and accountabilities remained as is.
A significant observation made during the assessment by Armstrong (2005) is
found in paragraph 2 of the Executive Summary, where it is stated that:
“While an appropriate, international standard corporate governance system
should be in place given the nature and significance of the LHWP, it was
important also to focus on core strategic and operational objectives given that
the institutional arrangement for the LHWP do not naturally follow the more
conventional corporate arrangements against which typical governance
arrangements would be structured (for example, in the private sector)”.
This observation once again highlights the need to look at the unique
challenges facing project governance, as opposed to corporate governance.
In support of the actions claimed by the panel towards the formation and
functioning of the project governance principles, the following documentation
was reviewed:
•
Selection criteria and formal letters of application and appointment to the
LHDA Board. These included:
o
M. Matsoso (15 December 2005)
o
T. Nkhahle (9 December 2005)
o
Dr M. Marake (14 December 2005)
o
A.L. Giani (7 December 2005)
o
J. J. Eager (9 May 2001)
o
Prof L. Qalinge (6 December 2005)
•
Report of Panel of Experts (No 15), 07 August 2002
•
Internal Audit Report (SEC/LHDA/2690), 23 March 2005
•
LHDA Bank Signature & Expense Authority Limits
2008
236
Project Governance for Capital Investments
•
Mohale Dam, Monthly Progress Report No. 19, October 1999
•
Implementation Completion Report, Phase 1B, 1998 – 2006
iii)
Project governance at LHWP against the CPGF
After discussing the background and context of the LHWP, and again
emphasising the objectives of the NGT process, the CPGF was projected
against an overhead screen and an additional column inserted to indicate the
comments and results of the discussions. By viewing the insertions and
changes, the NGT participants could immediately indicate their approval of the
changes. All changes and additions are indicated in italic bold. Where no
comments are given and the phrases are merely copied in italic, the NGT
panel agreed with the phrases as documented.
The result of the session is given below in Table 7.3, with special attention
drawn to the last column.
Table 7.3: Concept project governance framework
P. Project Governance
A. Project Steering
A. Project Steering Committee (LHWC)
Committee
– see note 1
1. Composition
1. Core Competencies
•
Project finance and
cost management
•
Business / project
alignment
•
Front-end-Loading
management
•
Crises response
•
Industry knowledge
•
International
experience
•
Leadership
•
Strategic alignment
capability
•
Contract management
capabilities
2. Steering Committee Size
Determined by project type,
complexity and magnitude
2008
1. Core Competencies (Original
Technical – complimented by others
in 1999)
•
Project finance and cost
management
•
Project definition and
requirements
•
Business / project alignment
•
Front-end-Loading management
•
Crises response
•
Industry knowledge
•
International experience
•
Leadership
•
Strategic alignment capability
•
Contract management
capabilities
•
Social and Environmental
capabilities (see note 2)
2. Steering Committee Size
237
Project Governance for Capital Investments
3. Member Mix
Comprise members with
direct interest as well
indirect stakeholder
representatives i.e. socioeconomic and
environmental
4. Chairperson Independent
The Chairperson should be
independent from any
project stakeholders
2.
Responsibility
3. Audit
Committee to
Board of
Directors
2008
3. Member Mix
Comprise members with direct
interest as well indirect stakeholder
representatives i.e. socio-economic
and environmental
4. Chairperson Independent
Chair role alternating between SA
and Lesotho – not compromising
mutual agreement
1. Committee Accountability
•
Overall accountability
•
Bridging gap between
project and immediate
external and statutory
environment.
1. Committee Accountability
•
Overall accountability
•
Bridging gap between project
and immediate external and
statutory environment.
2. Charter
Development and
adherence to project charter
2. Charter
Development and adherence to
project charter (Treaty – formal –
very successful)
1. Levels of Independence
The project audit committee
should be independent, with
the steering committee
excluded from the audit
committee.
1. Levels of Independence
The project audit committee should
be independent, with the steering
committee excluded from the audit
committee.
2. Project Literacy
The audit committee should
have extensive project
experience on all aspects of
large capital projects
2. Project Literacy
The audit committee should have
extensive project experience on all
aspect of large capital projects.
(Utilise panel of experts for project
management)?
B. Cost and Benefit
Management
1. Financial
Reporting
Responsibility
Determined by project type,
complexity and magnitude
B. Cost and Benefit Management
1. Steering Committee
Report against approved
budget
1. Steering Committee
Report against approved budget
Reporting to lenders (i.e. World
Bank criteria)
2. Project Governance
Charter
Report on adherence to the
charter
2. Project Governance Charter
Report on adherence to the Treaty
238
Project Governance for Capital Investments
2. Financial
Disclosures
3. Internal
Controls
1. Project Finance
For any financial activities
outside the GAAP
requirements, full disclosure
will be required
1. Project Finance
For any financial activities outside
the GAAP requirements, full
disclosure will be required
2. Reports
Project financial status to be
reported on a quarterly
basis
2. Reports
Overall project status to be reported
on a quarterly basis
3. Corrections and
Adjustments
To be reported quarterly
3. Corrections and Adjustments
To be reported quarterly
1. Risk Management
Process
Formal risk management
process should be in place
1. Risk Management Process
Formal risk management process
should be in place. (Was not done
formally on the LHWP, but is
highly recommended)
2. Risk Management
The steering committee
must actively ensure that
proper risk identification,
quantification and mitigation
planning is done on the
project, not only on financial
aspects, but covering all
aspects of the project
2. Risk Management
The steering committee must
actively ensure that that proper risk
identification, quantification and
mitigation planning is done on the
project, not only on financial aspects,
but covering all aspects of the
project. (Was not done formally on
the LHWP, but is recommended)
3. Risk Disclosure
Disclosure must be made
about all the risks on the
project during the total
project life-cycle
3. Risk Disclosure
Disclosure must be made about all
the risks on the project during the
total project life-cycle. (Was not
done formally on the LHWP, but is
highly recommended)
4. Risk Certification
Requirement for monthly
certification by the
chairperson of the steering
committee of disclosure
controls and procedures
4. Risk Certification
Requirement for monthly certification
by the chairperson of the steering
committee of disclosure controls and
procedures. (Was not done
formally on the LHWP, but is
highly recommended)
C. Project Reviews and
Audits
1.
Independence
2008
1. Objectivity
Independence and
objectivity of the project
auditors and reviewers must
be ensured
C. Project Reviews and Audits
1. Objectivity
Independence and objectivity of the
project auditors and reviewers must
be ensured
239
Project Governance for Capital Investments
2. Scope
Project reviews and audits
should not be confined to
adherence to in-house
methodologies and
practices, but should
include items that the
review / audit deem
necessary in order to
protect stakeholder
interests
3. Rotation
Auditors should have no
direct or indirect interest in
the project or in the
contractors
/
suppliers
involved with the project.
2. Interaction
with
Companies
1. Internal Charter
The internal charter should
include the approach
towards the auditing of
project management, the
adherence to project
methodologies, processes
and agreed practices and
the project team’s
functioning.
2. Scope
Project reviews and audits should
not be confined to adherence to inhouse methodologies and practices,
but should include items that the
review / audit deem necessary in
order to protect stakeholder
interests. (LHWC and JPTC
formally utilised panels of
experts: engineering panel, social
and environment panel)
3. Rotation
Auditors should have no direct or
indirect interest in the project or in
the contractors / suppliers involved
with the project. (Done formally on
LHWP)
1. Internal Charter (Policies &
procedures)
The internal charter should include
the approach towards the auditing of
project management, the adherence
to project methodologies, processes
and agreed practices and the project
team’s functioning. (Done very
formally – plus sub-committees)
2. Communication
As
with
corporate
governance, it requires
mandatory communication
between
the
external
auditor and the audit
committee
2. Communication
As with corporate governance, it
requires mandatory communication
between the external auditor and the
audit committee
3. New
Attestation
Report
1. Report
External auditor must issue
an attestation report on the
project’s internal control
report
1. Report
External auditor must issue an
attestation report on the project’s
internal control report
4. Disclosure
1. Non-audit services
As with corporate
governance, it is required
that separate disclosure of
the amounts paid to the
external auditor for nonaudit services is made,
together with a detailed
description of the nature of
services
1. Non-audit services
As with corporate governance, it is
required that separate disclosure of
the amounts paid to the external
auditor for non-audit services be
made, together with a detailed
description of the nature of services
2008
240
Project Governance for Capital Investments
2. Fees
Requires disclosure of fees
paid to a company’s
principal external auditor
since project
commencement
1. Code
2. Fees
Requires disclosure of fees paid to a
company’s principal external auditor
since project commencement
D. Ethical, responsible
conduct and conflict of
interest
D. Ethical, responsible conduct and
conflict of interest
1. Standards
A code of ethics should be
established and signed by
each member of
the
steering committee. The
code should include (as a
minimum):
•
Environment
•
Social aspects
•
Socio-economic
aspects
•
Conflict of interest
guidelines
1. Standards
A code of ethics should be
established and signed by each
member of the steering committee.
The code should include (as a
minimum):
•
Environment (not done
formally)
•
Social aspects (not done
formally)
•
Socio-economic aspects (not
done formally)
•
Conflict of interest guidelines
(not done formally)
•
Communication to external
parties
•
Office conduct
2. Adherence
Adherence to the code of
ethics should be disclosed
and reported on a monthly
basis.
2. Adherence
Adherence to the code of ethics
should be disclosed and reported on
a monthly basis. (Not formal – done
on a by-exception basis)
3. Disclosure
Code should be made
publicly available and any
changes to the code or
waivers from the code
must be disclosed
3. Disclosure
Code should be made publicly
available and any changes to the
code or waivers from the code must
be disclosed
2.
Compensation
1. Performance
Performance-related
elements of compensation
should represent a
substantial portion of the
total compensation package
1. Performance
Performance-related elements of
compensation should represent a
substantial portion of the total
compensation package
3. SHE
1. Adherence
SHE requirements should
be to international
standards as a minimum,
supplemented by host
1. Adherence
SHE requirements should be to
international standards as a
minimum, supplemented by host
country requirements. (Not done
2008
241
Project Governance for Capital Investments
4. Social
country requirements
formally on LHWP – see note 2)
1. Adherence
Social and socio-economic
considerations should be to
international standards as a
minimum, supplemented by
host country requirements
1. Adherence
Social and socio-economic
considerations should be to
international standards as a
minimum, supplemented by host
country requirements. (Not done
formally on LHWP – see note 2)
Notes to input:
Note 1 - Initially the JPTC, and later the LHWC, effectively fulfilled the
function of ‘steering committee’ on the LHWP. In hindsight, project
governance was well defined and applied on the project, although
not in so many words. To develop the governance principles in the
form of the Treaty took approximately 18 months and is a well
thought through document with an excellent description of the
project scope.
Note 2 - A prominent feature of the project was the lack of attention to health
and environmental issues. This was partly due to the fact that
safety, health and environmental issues were not such a critical
issue during the mid 1980s and few legal requirements on the
subject existed.
Again, on the question of which items in the CPGF are the most important and
how the items should be ranked, the unanimous response was that this is
impossible to say and that prioritisation will differ depending on the type and
location of the project. However, the panel highlighted the benefits of having a
well-defined scope of work and a technical / managerial component in people
on the steering committee.
Due to the capital size and duration of the project, many opportunities
presented themselves that tested the effectiveness of governance principles
contained in the Treaty. The next paragraph addresses some of the issues
that arose and which are still being addressed.
2008
242
Project Governance for Capital Investments
iv)
Legal actions and activities against LHWP
Various legal actions have been taken against, and by, the LHWP. Some of
the actions include:
•
Investigations into corruption / bribery allegations were launched against:
Spie Batignolles (France); Lahmeyer (Germany); Dumez (France); ABB
(Sweden); Impreglio (Italy); Cegelec (France); Gibb (UK) and Sogreah
(France). The parties apparently paid bribes to former LHWA CEO,
Masupha Sole (Zhuwakinyu, 2003).
•
Also likely to be charged are members of the Highlands Water Venture
(HWV) consortium – which built the Katse dam and comprised: Hochtief
(Germany), Impreglio, Bouygues (France), Stirling International (UK),
Kier International (UK), Concor (South Africa) and Group Five (South
Africa) – and the Lesotho Highlands Project Contractors, which built the
tunnels in Lesotho and was made up of Spie Batinolles, Balfour Beatty
(UK), Compenon Bernard (France), LTA (South Africa) and ED Zublin
(Germany)(Zhuwakinyu, 2003).
•
In 2004 Acres were found guilty of bribery and had to pay a fee of US$
2.2 million to the Lesotho High Court. In the same year the company was
also blacklisted on the World Bank’s list of suppliers and contractors
(McClearn, 2004)
•
Masupha Sole was found guilty and imprisoned for 18 years (McClearn,
2004)
•
In 2006 the German firm Lahmeyer was also found guilty of bribery, fined
R12 million and blacklisted on the World Bank list of suppliers and
contractors (Engineering News, 2006).
•
Other companies found guilty were Schneider Electric SA (fined R10
million) and Impreglio (Zhuwakinyu, 2004).
Apart from the above cases, the LHWP also had to deal with claims against a
potential river diamond mining operation, destruction of the habitat of
indigenous fish species and rebuilding of local housing after destruction during
earth movement caused by the water fill.
2008
243
Project Governance for Capital Investments
In the Treaty it appears that issues of potential misconduct and unethical
behaviour as well as the environment were not dealt with in as much detail as
managerial arrangements and thus could have benefited from a formal project
governance framework.
Apart from addressing the specific NGT protocol questions, some significant
comments about project governance in general were made. These items are
discussed in the next paragraph.
iii)
General observations from NGT participants
Again the NGT session on the LHWP project took longer that expected and
triggered some important observations from participants. The most important
observations, that could have an impact on formalising a final PGF, are listed
below:
•
Again the NGT panel agreed a governance environment for the project
manager to function within is usually lacking on large capital projects.
Thus, the necessity of a formal approach towards project governance
cannot be disputed and current theories and practices do not cater for
these practices.
•
The importance of skilled personnel, consultants and contractors cannot
be over emphasised. As with the Mozal I project, most of the items were
addressed because of the high level of experience and skill of the senior
managers on the project.
•
Clarity of scope is a determining factor. If the scope is clear, the
manageability of the project increases drastically, thereby simplifying the
establishment of a project governance framework. The core competency
of scope development listed in the CPGF is of critical importance.
•
The LHWP had the luxury of ample time to develop the Treaty. Not all
projects have this luxury and therefore some guideline will be beneficial.
In summary, the NGT panel on the LHWP project unanimously agreed that a
formal framework for project governance would greatly assist the senior
2008
244
Project Governance for Capital Investments
management and project steering committee on LCPs to create an
environment for effective project management.
2008
245
Project Governance for Capital Investments
Chapter 8: Secondary Case Study Review
The detailed case studies provided valuable insight into the formal and
informal management of project governance principles in large, cross-country,
capital projects. Confirming the observations made by the Delphi participants,
the NGT participants supported the potential value of working towards a
structured project governance framework to assist in creating an environment
within which the project can be managed towards success.
A major stumbling block for this study was the reserved response from project
managers to provide no, or very limited access to information on LCPs that
evidenced severe failures, especially where the failures could potentially be
traced to project governance issues. Various attempts were made to access a
number of projects, but even with an undertaking to conduct an anonymous
study, no participation could be achieved. Given this unfortunate situation, a
process was launched to conduct secondary case studies.
With secondary case studies, various project cases available in literature were
searched and their outcomes evaluated against key parameters contained in
the CPGF. A total of 15 secondary cases were identified reviewed and
clustered into categories ranging from failure, to questionable and successful.
Although the clusters do provide trend indications of where most projects fail
or achieve success, it would be difficult to generalise this outcome due to the
potential subjectivity of the case study origin. However, a clear observation is
that the key determining outcomes could be traced to at least one assessment
area in the CPGF.
The following paragraphs provide information on how the secondary cases
were obtained, the method of assessment, the mapping of the cases against
the assessment criteria and final conclusions.
2008
246
Project Governance for Capital Investments
8.1
Searching for secondary project case studies
During the search for project case studies on LCPs it became clear once
again that proper project cases are very difficult to obtain. As opposed to
strategic, marketing and human resource management, the compilation of
proper project cases has lagged tremendously in general theory and
academic literature. Obviously, this provides a major opportunity for academia
and researchers to fill this gap in the field of project management teaching
and research.
The criteria for case study usage / non-usage were listed prior to the
commencement of the search and are tabled below (Table 8.1).
Table 8.1: Criteria for qualifying the usage / non usage of available project cases
Qualifying criteria
•
Must be an actual project case
Project must involve multiple stakeholders,
including the broader society and preferably
access various sources of funding?
•
Disqualifying criteria
Project case should not revolve
around project management or control
items?
•
Project cases must not have a
marketing / promotional approach
•
Projects involving multiple countries and
multiple companies would be preferred
•
The criteria for project case selection were based on an attempt to discover
real life cases with a fair element of objectivity.
Marketing and teaching case studies were not considered, nor cases where
detailed project management and control activities are discussed.
The search for project cases included various methods, from formal key word
searches via an official academic information service, to enquiries, project
institutions and general internet browsing. A comprehensive list of candidate
projects was compiled and project that did not meet the criteria were
eliminated. The process and reasons for elimination are discussed in the
following paragraphs.
2008
247
Project Governance for Capital Investments
8.1.1 Key word searching
In order to obtain information on projects that were involved in some form of
legal dispute, a key word search was launched with the University of
Pretoria’s Academic Information Services (UPAIS), searching for:
•
Court cases where legal action was taken against the owners of LCPs.
•
General project cases studies and their outcomes.
It was hoped that the first search would result in the provision of official court
cases in which the case subject and ruling would indicate some relation to a
project governance assessment area. The outcome provided only two project
case studies, namely the Ok Tedi copper mining project in Papua New Guinea
(Zillman, Lucas and Pring, 2002) and the oil exploration project in Ecuador
(Boyle and Anderson, 1996). Both project cases discussed the legal actions
taken to protect the environment and social well-being of the indigenous
population.
The second general project key word search provided, mostly, superficial incompany case studies that are predominantly used for marketing and
promotion purposes. Due to the promotional and marketing approach, the
potential use of these types of case studies was limited in the context of this
dissertation.
8.1.2
Enquiry to project management institutions
The search for project cases continued with approaches to established project
management institutions, namely PMI, APM and IPMA.
During 2006, PMI produced a collection of project management case studies,
authored by Frank T. Arbani (2006). The case studies included:
•
Mars Pathfinder
•
Superconducting Super Collidor
2008
248
Project Governance for Capital Investments
•
The Chunnel Project
•
Miller Park Stadium
•
Springfield Interchange, and
•
Glasgow Science Centre Tower
However, all these case studies were viewed against the PMBoK (2000)
project process, and therefore addressed project control rather than the
elements of project governance.
Additional project case studies available on the PMI website (Summary Case
Study Library, 2007), included:
•
The 2005 Canada Games
•
AAA of Northern California
•
Baldwin Water Works
•
Colorado Springs Welcome Home Parade
•
Denver International Runway
•
Project Flexibility on a Global Scale Huawei Technologies
•
NASA Autonomous Rotocraft Project
•
New Zealand Wind Farm
•
Quartier International de Montréal
•
Saudi Aramco Haradh Gas Project
Again, these projects could not be used due to the marketing approach and
promotion of project management principles.
Another source from this search that could not be utilised was the case
studies contained in the book by Kerzner (2006). Again, these case studies
revolved around project management and control, not governance.
8.1.3
Internet search
An extensive internet search provided the most useful source of information.
Given the criteria listed, project cases could be retrieved from sources such
as:
2008
249
Project Governance for Capital Investments
•
United Nations (www.un.org)
•
World Bank (www.worldbank.org)
•
European
Bank
for
Reconstruction
and
Development
(EBRD)
(www.ebrd.org)
•
Probe International (www.probeinternational.org)
•
Rights Action (www.rightsaction.org)
Projects found on the World Bank, United Nations and EBRD websites and
databases focused on PPPs and developmental projects. These sources are
valuable in terms of coverage of multiple countries, companies, governments
and stakeholders. The only criticism is the potential subjectivity in promoting
these institutions’ goodwill when listed on their own websites.
The projects listed by Probe International and Right Action were mostly
concerned with projects in potential violation of ethical, social and
environmental conduct. These institutions are concerned with highlighting
potential harm that projects could cause and actively engage in investigations.
Obviously, these are reputable resources, but care should be taken with
regard to potential subjectivity and protection of interests.
8.1.4
Selected case studies
Eventually the search for case studies resulted in various references to
projects that had to be viewed in terms of their outcomes. A total of 15
projects were selected and are summarised in Appendix E. The projects were
categorised as being ‘successful’ (s), ‘failed’ (f) or ‘questionable’ (q). The
successful and failed projects were categorised in terms of their eventual
outcome and economical / social / environmental and sustainability impact,
whilst the questionable projects still had pending issues during the writing of
this dissertation.
The projects selected were numbered according to the corresponding
Secondary Case Number ‘B’ in Appendix E:
B1 - Danish Sports Facility (f)
2008
250
Project Governance for Capital Investments
B2 - British Embassy in Berlin (s)
B3 - The Mapeley PFI project: sale of land and building by the Inland
Revenue (f)
B4 - The Chesapeake Forest (s)
B5 - The Zurich Soccer Stadium project (s)
B6 - D47 Motorway Project (Czech Republic) (f)
B7 - Tajikistan Pamir Private Power Project (s)
B8 - Scottish Schools (q)
B9 - Bulgaria, Sofyiska Voda – Water Supply Programme (s)
B10 - Vancouver Landfill Cogeneration Plant (s)
B11 - Channel Energy Poti Port Project, Georgia (s)
B12 - New Multi-purpose Terminal in the Baltic Seaport of Ventspils,
Latvia (s)
B13 - Three Gorges Dam (q)
B14 - Ecuador Oil Production (q)
B15 - Ok Tedi Mine – Papua New Guinea (f)
In total, 8 projects were successful, 4 were failures and 3 are still
questionable. The selected projects and their categories formed the basis for
further evaluation.
8.2
Mapping the project outcomes on the CPGF
Each project’s outcome was assessed against the CPGF to see ‘where things
went right or wrong’. For example, where the project established a successful
venture through well structured financing arrangements and managed
environmental studies, the project was linked with:
A. Project Steering Committee – 1. Composition, as well as
D. Ethical, responsible conduct and conflict of interest – 1. Code
The detailed description of each specific element is given in Appendix E. The
total number of repetitions for each assessment area is also given. The
summarised mapping of the project outcomes is allocated to ‘successful’,
2008
251
Project Governance for Capital Investments
‘failed’ and ‘questionable’. The ‘successful’ projects’ mapping is given in
Figure 8.1 above.
B2
B4
B5
B7
B9
B10
B11
B12
Concept Project Governance Framework (CPGF)
P. Project Governance
A. Project Steering Committee
1. Composition
2. Responsibility
3. Audit Committee to Board of Directors
B. Cost and Benefit Management
1. Financial Reporting Responsibility
2. Financial Disclosures
3. Internal Controls
C. Project Reviews and Audits
1. Independence
2. Interaction with Companies
3
New Attestation Report
4
Disclosure
D. Ethical, responsible conduct and conflict of
interest
1. Code
2. Compensation
3. Integrated sustainability
4. Social
Total
7
1
2
6
2
1
Figure 8.1: Successful project mapping
On the successful projects it is evident that the most prominent drivers were
Composition’ (seven references) of the Steering Committee and ‘Code’ (six
references) and which includes adherence to ethical, social, socio-economic
and environmental compliance and management. Under ‘Composition’, the
structuring of financial arrangements and contractual agreements played a
dominant role (see Appendix E). Again, due to the origin of these project
cases, namely development agencies, it was expected that the mentioned
areas would be considered important.
The same exercise, as was done with successful projects, was done with
failed projects. The results are given below in Figure 8.2.
2008
252
Project Governance for Capital Investments
B1
B3
B6
B15
Concept Project Governance Framework (CPGF)
P. Project Governance
A. Project Steering Committee
1. Composition
2. Responsibility
3. Audit Committee to Board of Directors
B. Cost and Benefit Management
1. Financial Reporting Responsibility
2. Financial Disclosures
3. Internal Controls
C. Project Reviews and Audits
1. Independence
2. Interaction with Companies
3
New Attestation Report
4
Disclosure
D. Ethical, responsible conduct and conflict of
interest
1. Code
2. Compensation
3. Integrated sustainability
4. Social
Total
4
2
1
1
3
Figure 8.2: Failed project mapping
An interesting result for the failed projects is that the ‘causes’ of project failure
are also the ‘causes’ for project success. Badly structured, financed projects
not adhering to the codes of conduct relating to the broader society seem to
be bound for failure.
Figure 8.3 below illustrates the assessment of ‘questionable’ projects and is
given below (Questionable Project Mapping).
Again, as with the successful and failed projects, the ‘questionable’ projects
indicated that Composition, Code, Integrated Sustainability and Social
parameters have a deciding influence on project outcomes.
2008
253
Project Governance for Capital Investments
Concept Project Governance Framework (CPGF)
P. Project Governance
A. Project Steering Committee
1. Composition
2. Responsibility
3. Audit Committee to Board of Directors
B. Cost and Benefit Management
1. Financial Reporting Responsibility
2. Financial Disclosures
3. Internal Controls
C. Project Reviews and Audits
1. Independence
2. Interaction with Companies
3
New Attestation Report
4
Disclosure
D. Ethical, responsible conduct and conflict of
interest
1. Code
2. Compensation
3. Integrated sustainability
4. Social
B8
B13
B14
Total
2
1
1
1
3
3
2
Figure 8.3: Questionable project mapping
8.3
Summary
As indicated by nearly all the Delphi study participants, a project governance
framework must be generic enough to allow for the majority of variables found
in LCPs but also flexible enough to adjust to specific project requirements. In
order to assess the general application of the CPGF, 15 case studies were
selected through a general internet search and assessed against the criteria
listed in the four sections of the CPGF.
The projects were categorised in terms of whether the project outcomes were
successful, a failure or questionable. The main reasons for the outcome were
identified and linked with an assessment category in the CPGF.
2008
254
Project Governance for Capital Investments
From the results, it was clear that for every project at least one CPGF
category could be linked to the main causes of the project outcomes.
Thus, in terms of general application and completeness, the CPGF content
proved to be sufficient and these 15 cases did not indicate any further need
for modification of the CPGF.
A second observation made during the secondary case study exercise was
that certain assessment categories have a higher frequency of occurrence
than others. Although this could be due to the type of projects assessed, it
remains significant that:
•
The composition of the steering committee, especially the members’
ability, or inability, to structure the project financially and contractually,
had a major impact on project outcomes.
•
The adherence, or non-adherence, to a code of ethical, responsible
conduct and conflict of interest, also had a significant impact on project
outcomes. In most of these cases, addressing socio-economic
sustainability and environmental concerns proved to be key to ensuring a
positive project outcome.
During the search for case studies it became clear, once again, that the
availability of well documented project case studies remains a challenge. The
use of case studies forms an integral part of management teaching and
research and thus far project management seems to lag behind other
management fields.
Given the findings of the literature reviews on LCPs, corporate governance,
the Delphi study, as well as the results from the primary and secondary case
studies, some conclusions can be drawn in the formulation of a final project
governance framework.
2008
255
Project Governance for Capital Investments
Chapter 9: Conclusions and Recommendations
Project governance is a topical subject. Debates and arguments with respect
to its purpose and content are becoming vibrant in project management
literature and practice. Without a proper, generally acceptable definition of the
term ‘project governance’, various academics, consultants and practitioners
have adopted the term and apply it to virtually any form of governing activity.
The term has been used in the field of information management (where
access to data is ‘governed’), the control or management of project managers
and managing programmes (as opposed to projects). However, within all the
various applications of the term, a common objective is surfacing: “to improve
the overall performance of projects in terms of meeting project objectives,
within time and within budget”.
This dissertation focussed on the definition and application of project
governance in the field of LCPs. To define a LCP is problematic because
projects with a relatively small capital value can have a large impact (i.e. a
pilot nuclear reactor). Conversely, a relatively simple project can have a large
capital outlay (i.e. replacement of a power station turbine and compressor
set). For the purpose of this study, projects valued at over US$ 50 million
were considered. However, where smaller projects had a significant impact on
the environmental and socio-economic fields they were also added to the
research data base. Given this flexibility, it was still decided to exclude
projects with a capital value of less that US$ 10 million.
The following paragraphs provide a short overview of the literature study and
rationale behind the topic of project governance. This background was used
as a foundation to define the concept of ‘project governance’ and what it
should comprise. The end product of this part of the study, which was done by
means of the Delphi method, was the CPGF. The CPGF was then used to
evaluate two case studies in depth, as well as 15 smaller cases studies. The
purpose of the case studies was to evaluate the completeness and general
2008
256
Project Governance for Capital Investments
applicability of the CPGF. Given the lessons learned in applying the CPGF to
all the case studies, a final PGF is proposed. This chapter concludes with
recommendations for future studies on the topic of project governance.
9.1
LCPs and the search for performance improvement
Over the years, the performance of LCPs in the energy, infrastructure, mining,
petrochemical, nuclear and other heavy industries has remained questionable.
Even with the invention and development of advanced project management
tools, techniques and software systems, the overall performance of LCPs
remains poor in terms of meeting cost budgets and intended benefits. Some
project cost overruns amount to more than 100% of the initial budget and
could be referred to as ‘scandalous’. This observation prompted the search for
potential solutions outside the immediate sphere of project management and
control.
In the field of corporate management, evolutionary developments brought
about formal approaches and guidelines to the management of organisations.
A major management intervention occurred in the late 20th century after
corporate financial scandals with the establishment of corporate governance
guidelines and laws. With projects, sometimes referred to as temporary
organisations, it seemed possible that project management could benefit from
these principles and bring about a higher level of responsibility in project cost
estimation and development.
9.2
Corporate governance
The evolution of the corporation can be traced back to 3000 BC. The process
of corporate evolution saw a cyclical alteration of ownership and control being
centralised by governments and privatised. The modern privatisation notion
was prompted in the early 1980s by the UK government and spread around
the globe. With pressure on private corporations to perform financially for their
shareholders, as well as major incentives offered to top management, high
risk dealings and decisions were taken. With the enormous pressure on
2008
257
Project Governance for Capital Investments
performance and subsequent lucrative financial incentives, some top
managers were drawn into fraudulent activities and misrepresented company
financial status for their own benefit. These practices led to major scandals
(e.g. Enron, Parmalat, Worldcom, etc.) and prompted government to again
intervene. This intervention saw the emergence of corporate governance in
various forms, from laws to guidelines. The overall intention of corporate
governance was to establish “an environment that defines the parameters for
responsible corporate and managerial conduct” and corporate governance
was applied to all spheres of organisational activities, from private to
governmental institutions.
This environment, within which the parameters are set for management to run
their organisation’s strategic and operational activities, does not exist in the
world of projects. Various statutory guidelines exist for projects initiated under
non-governmental
institutions
like
the
World
Bank,
United
Nations,
International Monetary Fund, etc., but the term project governance, in the
same context of corporate governance, has not been defined as yet.
9.3
Defining ‘project governance’
In order to define the term ‘project governance’ a Delphi study was launched
to obtain input from participants involved in project management practice as
well as from academics. The Delphi study was conducted over two rounds,
after which convolution was obtained. A total of nine questions were posted
and the final answers are given in Table 9.1 below.
The results from the Delphi studies provided some form of definition for
project governance. They also confirmed the lack of a project governance
framework or model that would provide and define an environment within with
large capital projects could be initiated and implemented. It was also clear
from the feedback that any form of project governance framework should be
strongly linked to the principles of corporate governance and must be generic
to allow for customisation as required.
2008
258
Project Governance for Capital Investments
No
Question
Table 9.1: Delphi results
Final Response
1
How would you define /
describe the concept of
project governance?
Project governance is a set of management systems,
rules, protocols, relationships and structures that provide
the framework within which decisions are made for project
development and implementation to achieve the intended
business or strategic motivation
2
Do current project
management
frameworks and
practices fail to address
project governance?
Please explain.
Overwhelmingly YES (current frameworks and practices
do fail to address project governance).
3
What are the similarities
between corporate
governance and project
governance?
General consensus was that for project governance the
same principles apply as for corporate governance.
However, half the respondents added that project
governance should not only be aligned with, but be a
subset of, corporate governance. Project governance
should extend the principles of corporate governance to
address the uniqueness of the temporary nature and
relationships associated with projects. For example, where
corporate governance addresses the composition and
functioning of the board, project governance should do the
same for the project steering committee.
4
What are the differences
between corporate
governance and project
governance?
Corporate governance is very clear regarding the level and
detail of financial and legal disclosures, while for project
governance the level and type of disclosure it is not at all
clear. The difference in timeframes requires an alternative
approach to the process and speed of decision-making.
5
What are the differences
between project control
and project governance?
Project control is a subset of project governance. Project
governance should be a proactive measure that sets the
scene and framework within which project management,
and subsequently project control, should function.
6
To what extent should a
project governance
framework for LCPs be
project specific,
company specific,
country specific or
generic?
A project governance framework should be largely generic,
with room to incorporate project specific and unique
requirements.
7
Much effort currently
goes into the
establishment of global
corporate governance
principles. What
Challenges include:
1) accommodating financier's requirements and risks
2) application
in countries with weak corporate
governance
3) apply in countries where senior / influential individuals
2008
Although some guidelines exist on the governance of
project management, concerns were raised regarding:
1) the definition and management of risk
2) non-alignment and lack of integration with business /
strategic parameters
3) authority of project leaders
4) practical application of governance concepts in projects,
as well as
5) discipline to refine and apply project governance
principles.
259
Project Governance for Capital Investments
challenges need to be
considered and
overcome in the
development and
establishment of a formal
global project
governance framework
for LCPs involving
multiple countries and
companies?
4)
5)
6)
‘do not want better control’ for selfish reasons
complexity of globalisation and virtual work
making project governance simple and practical to
apply, as well as
overcoming stakeholder resistance to ‘another’ form of
statutory requirement.
8
How should role player
liability towards eventual
project performance be
incorporated into a
global project
governance framework?
This question provided for the only real difference in
opinion. Approximately half of the respondents believed
that stakeholder liabilities should be clearly defined in as
much detail as possible (as with a board of directors in
corporate governance), while the other school of thought
argued that any items or actions that could create potential
adversarial situations should be avoided and handled
outside the project context.
9
Please provide any other
comments that you might
have regarding the
development and
implementation of a
project governance
framework.
The project governance framework should:
1) be generic, with the possibility of incorporating project
specific requirements
2) be very practical to use
3) be a framework for decision-making, and
4) contain an element that promotes self-governance.
Project governance should reduce runaway project
spending, just as good corporate governance reduces
uncontrolled.
From the Delphi results, the corporate governance principles stipulated in the
King II guidelines (SA) and Sarbanes Oxley Act (The United States of
America, 2002) were used as a basis for deriving a CPGF. The countries were
selected on the basis of the level of development. The RSA is termed a
developing country and the corporate governance principles reflect the current
needs of the developing world, especially in the fields of environmental and
socio-economic management. The USA represents the developed world, with
their corporate governance laws more focussed on financial management and
reporting.
In order to test the CPGF, two sets of case studies were conducted. The first
(primary) case studies comprised two in-depth case studies, while the
secondary cases comprised of 15 projects available in literature.
2008
260
Project Governance for Capital Investments
9.4
Case studies
For the two primary case studies, the Mozal I project and the LHWP were
selected. In both cases, the NGT was applied. For the secondary cases
studies, available literature on the 15 projects was collected and the outcomes
evaluated against the components listed in the CPGF.
9.4.1
Results – primary case studies
Both panels involved in the respective case studies confirmed the need for
and value of a well structured PGF for large capital projects. There was
general agreement that project governance must be aligned with corporate
governance.
The Mozal I project was very successful and was the winner of the PMI
Project of the Year Award in 2001 During the study, it became clear that most
of the project governance principles were addressed formally, or at least
informally, during the project. Specific aspects that were done well and
potentially contributed substantially to the success of the project were:
•
Ability to properly define the project scope.
•
Selection of competent personnel onto the steering committee and into
senior positions.
•
Auditing of various project management practices was conducted but not
pre-planned. Due to the fact that the project was mostly privately funded,
the in-house corporate governance principles assisted in adhering to
good accounting practices.
•
The format and content of the CPGF was generic and comprehensive
enough for application to LCPs.
•
No CPGF category could be considered to be more important than
another.
The LHWP was a longer term project (20 years) involving more political input
and state funding. The response from the panel and case study results are
summarised below:
2008
261
Project Governance for Capital Investments
•
Again the NGT panel agreed that a governance environment for the
project manager to function within is usually lacking on LCPs. Thus, the
necessity of a formal approach towards project governance cannot be
disputed and current theories and practices do not cater for these
practices.
•
The importance of skilled personnel, consultants and contractors cannot
be over emphasised. As with the Mozal I project, most of the items were
addressed because of the high level of experience and skill of the senior
managers on the project.
•
Clarity of scope is a determining factor. If the scope is clear, the
manageability of the project increases drastically, thereby simplifying the
establishment of a project governance framework. The core competency
of scope development listed in the CPGF is of critical importance.
•
The LHWP had the luxury of ample time to develop the Treaty. Not all
projects have this luxury and therefore some form of guideline would be
beneficial.
In general, the primary cases revealed that the proper composition of the
project team, a well defined project scope and a structured framework for
project governance would be beneficial to any project.
9.4.2
Results – secondary case studies
The secondary case studies revealed a trend towards certain parameters in
the CPGF, namely the Composition of the Steering Committee and
compliance to the Code for Ethical, Responsible Conduct and Conflict of
Interest. In most cases, both project success and failure could largely be
attributed to adherence or non-adherence to both these parameters.
The secondary case studies demonstrated that the key performance drivers of
the various projects were all contained in the CPGF and that the framework
was generic enough to capture general and specific project variables. In view
of this finding, a final PGF was proposed.
2008
262
Project Governance for Capital Investments
9.5
The project governance framework (PGF)
Considering the basic requirements for a PGF as stipulated by the Delphi
participants and the results from the primary and secondary cases studies, a
PGF is proposed for application and further refinement in industry. The PGF
content is given below in Table 9.2 below.
Table 9.2: Project governance framework
P. Project Governance
A. Project Steering Committee
1. Composition
1. Core Competencies
•
Project finance and cost management
•
Project scope development and confirmation
•
Risk assessment
•
Project control requirements
•
Business / project alignment
•
Front-end-Loading management
•
Crisis response
•
Industry knowledge
•
International experience
•
Leadership
•
Strategic alignment capability
•
Contract management capabilities
•
Understanding of social and environmental requirements
•
Political influence
•
Local legal requirements
2. Steering Committee Size
Determined by project type, complexity and magnitude. Subcommittees for cost control, environmental, socio-economic,
etc.
3. Member Mix
Comprise members with direct interest, as well indirect
stakeholder representatives i.e. socio-economic and
environmental.
4. Chairperson Independent
•
For state expenditure - the chairperson should be
independent from all project stakeholders
•
For own / private capital funding, the chairperson should be
from the major shareholder and / or operating company
2. Responsibility
2008
1. Committee Accountability
•
Overall accountability
•
Bridging gap between project and immediate external and
statutory environment
•
Project promotion and stakeholder enablement
263
Project Governance for Capital Investments
•
•
Obtaining finance
Establish levels of authority
2. Charter
Development and adherence to project charter, including
project policies and philosophies.
3. Audit
Committee to
Board of Directors
1. Levels of Independence
The project audit committee should be independent, with the
steering committee excluded from the audit committee.
2. Project Literacy
The audit committee should have extensive project experience
on all aspects of LCPs.
3. Scope of the auditors to be vetted by the steering committee
B. Cost and Benefit Management
1. Financial
Reporting
Responsibility
1. Steering Committee
Report against approved budget.
2. Project Governance Charter
Report on adherence to the Charter.
2. Financial
Disclosure
1. Project Finance
For any financial activities outside the GAAP requirements, full
disclosure will be required.
2. Reports
Project’s financial status to be reported on a quarterly basis.
3. Corrections and Adjustments
To be reported quarterly.
3. Internal
Controls
1. Risk Management Process
Formal risk management processes should be in place.
2. Risk Management
The steering committee must actively ensure that proper risk
identification, quantification and mitigation planning is done on
the project and not only on the financial aspects, but covering
all aspects of the project.
3. Risk Disclosure
Disclosures must be made about all the risks on the project
during the total project life-cycle.
4. Risk Certification
Requirement for monthly certification by the chairperson of the
steering committee of disclosure controls and procedures.
C. Project Reviews and Audits
1. Independence
2008
1. Objectivity
Independence and objectivity of the project auditors and
reviewers must be ensured.
264
Project Governance for Capital Investments
2. Scope
Project reviews and audits should not be confined to adherence
to in-house methodologies and practices, but should include
items that the review / audit deem necessary to protect
stakeholder interests.
3. Rotation
Auditors should have no direct or indirect interest in the project
or in the contractors / suppliers involved with the project.
2. Interaction with
Companies
1. Internal Charter
The internal charter should include the approach to the auditing
of project management, the adherence to project
methodologies, processes and agreed practices and the project
team’s functioning.
2. Communication
As with corporate governance, it requires mandatory
communication between the external auditor and the audit
committee.
3. New Attestation
Report
1. Report
External auditor must issue an attestation report on the project’s
internal control report.
4. Disclosure
1. Non-audit services
As with corporate governance, it is required that separate
disclosure of the amounts paid to the external auditor for nonaudit services is provided, together with a detailed description of
the nature of services.
2. Fees
Requires disclosure of fees paid to a company’s principal
external auditor since project commencement.
D. Ethical, responsible conduct and conflict of interest
1. Code
1. Standards
A code of ethics should be established and signed by each
member of the steering committee. The code should include (as
a minimum):
•
Environment
•
Social aspects
•
Socio-economic aspects
•
Conflict of interest guidelines
2. Adherence
Adherence to the code of ethics should be disclosed and
reported on a monthly basis.
3. Disclosure
Code should be made publicly available and any changes to the
code or waivers from the code must be disclosed.
2008
265
Project Governance for Capital Investments
2. Compensation
1. Performance
Performance-related elements of compensation should
represent a substantial portion of the total compensation
package.
3. SHE
1. Adherence
SHE requirements should be to international standards as
minimum and be supplemented by host country requirements.
4. Social
1. Adherence
Social and socio-economic considerations should be to
international standards as a minimum and be supplemented by
host country requirements.
The PGF provides a generic baseline for country, company or project specific
requirements. However, all aspects listed should be adhered to and preferably
be formally audited.
9.6
Recommendations and topics for future research
To further develop the PGF and enhance research in the fields of project
governance, the following suggestions could be considered:
•
Obtain more case studies, both primary and secondary, and test their
results and the drivers of the results against the PGF.
•
The results from the Delphi study highlighted a shortcoming in current
literature with respect to practical guidelines for project governance. Most
literature either focuses on project leadership and the role of the project
manager and then again on the alignment between the project and
organisational strategy. The question remains how the strategic
objectives will guide the governance of the project. This dissertation
made an attempt to fill the gap by means of a generic framework,
however much research can be done in future to provide more
customised, country / industry specific PGFs.
•
Much of the literature review discussed the findings from Flyvbjerg
(2003). Although the analysis by Flyvbjerg (2003) was comprehensive,
the study failed to provide a solution to prevent potential misconduct. It is
believed that the PGF could assist in analysing the projects mentioned
2008
266
Project Governance for Capital Investments
by Flyvbjerg (2003) and assess the level of adherence to project
governance principles. The PGF can be used to establish the
relationship between adherence to project governance principles and
eventual project outcomes.
Develop a more detailed questionnaire for each PGF category on what
•
the detail of the terms actually mean or represent
Engage the corporate governance fraternity and obtain input to further
•
enhance the formulation of the PGF
Investigate the viability of establishing the PGF as a statutory
•
requirement for LCPs.
The study could not establish a predominant project governance factor in
•
the primary case studies. Further studies could try to establish more
dominant factors by increasing the sample size and allocating weights to
the various factors.
•
The impact of organisational politics on project performance.
•
The impact of organisational politics on project estimation.
Further investigations and research into the PGF will confirm the existence of
a fairly well defined PGF for application during the earlier phases of an LCP.
9.7
Limitations
This dissertation provides a generally accepted definition for project
governance and established a framework to be used in practice. Even though
the dissertation did achieve the set objectives, some limitations are still
evident and provide opportunity for further development.
The limitations are:
•
The empirical work was limited to the investigation of two large projects as
primary case studies and a number of secondary case studies that did not
necessarily involve large capital amounts
2008
267
Project Governance for Capital Investments
•
The two primary case studies were both successful projects. For further
validation more case studies should be reviewed and, preferably, less
successful ones should be included.
•
The study is limited to relatively complex projects, involving multiple
stakeholders.
2008
268
Project Governance for Capital Investments
APPENDICES
Appendix A
Questionnaire:
The Development of a Formal Project Governance Framework for Large
Capital Projects
A. Introduction
The concept of Project Governance is currently a popular topic of discussion.
However, after recent literature studies and engagement with practitioners as well as
academics, it became clear that no formal and agreed upon definition or framework
exists for Project Governance, especially in the field of large capital projects.
This study aims to source the views and inputs of experienced participants with
respect to their understanding of what a typical Project Governance Model
comprises of, or should comprise of, in the environment of large capital projects.
The study follows the Delphi Research Technique and will comprise at least two
rounds of questioning. This round (which is the first round) comprises open
questions, while the second round will comprise a ranking questionnaire.
Your input would be highly appreciated.
2008
269
Project Governance for Capital Investments
B.
Participant Profile— [Name and Surname]
The participant profile contains a General section (B.1) to be completed by all
participants. The second section (B.2) distinguishes between two categories, namely
Academics and Practitioners. Please select the most appropriate category for
completion.
B.1 General
Age: 21-30, 31-40, 41-50, 51 – 60, 61+
Country:
B.2 Categories
B.2.1 Academics
B.2.2 Practitioners
Highest Academic Qualification:
B-degree, M-degree, PhD
Number of year’s experience:
Number of international publications:
Estimated cumulative capital value of
projects managed:
Number of books authored / co-authored:
Type of industry:
Petrochemical, Oil & Gas, Mining,
Transport & Infrastructure, Building,
Telecommunications, Defence, Other
Capacity: Client, Contractor, Consultant
Position:
Project Manager,
Sponsor
2008
Project
Director,
270
Project Governance for Capital Investments
B. Questions
Please provide your detailed comments and views regarding the following:
1. How would you define / describe the concept project governance?
2. Do current project management frameworks and practices fail to address project
governance? Please explain.
3. What are the similarities between corporate governance and project
governance?
4. What are the differences between corporate governance and project
governance?
5. What are the differences between project control and project governance?
6. To what extent should a project governance model for large capital projects be
project specific, company specific, country specific or generic?
7. Much effort currently goes into the establishment of global corporate
governance principles. What challenges need to be considered and overcome
in the development and establishment of a formal global project governance
model for large capital projects involving multiple countries and companies?
8. How should role player liability in eventual project performance be incorporated
in a global project governance model?
9. Please provide any other comments that you might have regarding the
development and implementation of a project governance model.
2008
271
Project Governance for Capital Investments
Appendix B
Delphi results: Round 1
This appendix contains the detailed feedback given by each respondent during the
first Delphi round. To keep the responses anonymous, each respondent was
allocated a number.
Each result table contains:
•
The respondent number
•
Respondent profile
•
The nine questions
•
Feedback per respondent
The feedback was summarised and prepared for the second Delphi round.
2008
272
Project Governance for Capital Investments
Respondent 1:
Name
Age
Country
Qualification
Experience
International Publications
Project Capital Value
Books Authored
Industry
Capacity
Position
Question 1- How would you define /
describe the concept ‘project
governance’?
Key Words / Phrases
Question 2 - Do current project
management frameworks and practices
fail to address project governance?
Please explain.
Key Words / Phrases
Question 3 - What are the similarities
between corporate governance and
project governance?
Key Words / Phrases
Question 4 - What are the differences
between corporate governance and
project governance?
Key Words / Phrases
Question 5 - What are the differences
between project control and project
governance?
Key Words / Phrases
Question 6 - To what extent should a
project governance model for large
capital projects be project specific,
company specific, country specific or
2008
Respondent 1
51+
RSA
B-degree
35
0
US$ 20,000,000,000
0
Petrochemical
Client
Project Director
Project governance seeks to ensure both continued best
performance as well as full conformance (compliance).
Since a project is the starting
point of a business, it needs a solid platform for future
sustainability. Project governance is also a tool to
address the project risks in a systematic way.
Project performance, risk
Current frameworks and practices address only a
portion of the field in project governance. The reason is
that too little is understood about what governance is all
about and a very narrow view is taken on project risk.
Yes, little about risk, not commonly understood
The principals of governance are the same in both
areas. The systems applied have a degree of overlap.
Should be proactive in both areas.
Corporate governance includes project governance.
PG subset of CG, proactive, overlapping
A large portion of corporate governance is covered by
laws / regulations / audits / standards / etc., whereas
project governance is mostly covered by board /
company requirements and industry best practice.
Disclosure in corporate governance is defined more
clearly than with project disclosure.
Not same level of disclosure
Project controls cover only a portion of the bigger project
governance area.
PC is a subset of PG
Depending on the impact of the project on the business,
all projects should have a specific element regarding
governance and, naturally, all projects will have a
generic element.
273
Project Governance for Capital Investments
generic?
Key Words / Phrases
Question 7 - Much effort currently goes
towards the establishment of global
corporate governance principles. What
challenges need to be considered and
overcome in the development and
establishment of a formal global project
governance model for large capital
projects involving multiple countries
and companies?
Key Words / Phrases
Question 8 - How should role player
liability for eventual project
performance be incorporated in a global
project governance model?
Key Words / Phrases
Question 9 - Please provide any other
comments that you might have
regarding the development and
implementation of a project governance
model.
Key Words / Phrases
2008
Generic base with room for specifics
Most of the global projects will require project specific
requirements, most of which will be determined by the
financiers, governments and different joint venture
partners. The above entities will automatically
impose their governance requirements. What remains
as common governance requirements will be the topic of
debate as to whether this necessitates a global
model. I believe an area where a start could be made is
the project outcomes and risk aspects.
Definition of outcomes and risks, financiers input will be
key.
It is essential to be incorporated.
Essential
It should not be forgotten that self-governance should
play a very important part. Self-governance is normally
focussed on adding more value and thereby ensuring
that business objectives are meat in a better and
more effective way. External governance is seen as a
need ‘someone else’ has and is handled in a way to
satisfy those needs, which usually does not get
integrated well with the business objectives.
PG not a substitute for self-governance.
274
Project Governance for Capital Investments
Respondent 2:
Name
Age
Country
Qualification
Experience
International Publications
Project Capital Value
Books Authored
Industry
Capacity
Position
Question 1- How would you define /
describe the concept ‘project
governance’?
Key Words / Phrases
Question 2 - Do current project
management frameworks and practices
fail to address project governance?
Please explain.
Key Words / Phrases
Question 3 - What are the similarities
between corporate governance and
project governance?
Key Words / Phrases
Respondent 2
51+
RSA
B-degree
25
0
US$ 1,000,000,000
0
Petrochemical
Client
Project Director
Set the rules
Check compliance
Establish deviations (trends)
Amend rules if necessary
The above refers to: Change Control, Human
resources, Financial, Schedule, Cost, Construction,
Engineering, Risk. It includes legal and own
compliance.
Rules, compliance, risk
It is mainly limited to money:
Invoices
Processes
Claims
Limited to money
The one is a mirror image of the other.
A project is a business in its own right.
The level and detail of reporting differs.
Similar, difference in level of reporting
Question 4 - What are the differences
between corporate governance and
project governance?
Key Words / Phrases
The level of detail.
More directed towards legal compliance.
Question 5 - What are the differences
between project control and project
governance?
This is the same as for quality control and quality
assurance.
Project control: The operational activities and
techniques required to verify whether requirements
are met.
Project governance: Planned and systematic actions
to provide adequate confirmation that requirements
will be satisfied.
Key Words / Phrases
2008
Detail, legal
PG is proactive, set the scene
275
Project Governance for Capital Investments
Question 6 - To what extent should a
project governance model for large
capital projects be project specific,
company specific, country specific or
generic?
Key Words / Phrases
Question 7 - Much effort currently goes
into the establishment of global
corporate governance principles. What
challenges need to be considered and
overcome in the development and
establishment of a formal global project
governance model for large capital
projects involving multiple countries and
companies?
As indicated above, there are various layers of
authority that set legal requirements (international,
national, provincial, municipal) that must be complied
with. This means that the generic model can be used
as a guide to formulate the project specific model.
For own compliance of rules, the same applies.
Generic base with room for specifics
No comment
Key Words / Phrases
Question 8 - How should role player
liability for eventual project performance
be incorporated in a global project
governance model?
No comment
Key Words / Phrases
Question 9 - Please provide any other
comments that you might have regarding
the development and implementation of
a project governance model.
No comment
Key Words / Phrases
2008
276
Project Governance for Capital Investments
Respondent 3:
Name
Age
Country
Qualification
Experience
International Publications
Project Capital Value
Books Authored
Industry
Capacity
Position
Question 1- How would you define /
describe the concept ‘project
governance’?
Key Words / Phrases
Question 2 - Do current project
management frameworks and practices
fail to address project governance?
Please explain.
Key Words / Phrases
Question 3 - What are the similarities
between corporate governance and
project governance?
Key Words / Phrases
Question 4 - What are the differences
between corporate governance and
project governance?
Key Words / Phrases
Question 5 - What are the differences
between project control and project
governance?
Key Words /Phrases
Question 6 - To what extent should a
project governance model for large
capital projects be project specific,
company specific, country specific or
generic?
Key Words / Phrases
2008
Respondent 3
51+
RSA
B-degree
20
0
US$ 200,000,000
0
Mining
Client
Project Manager
This should clearly spell out all the project why's and
the what's required by the client but not the how's at
this stage.
Client requirements
Yes, because most of the clients are not competent in
project management and do not know what is needed
for effective project execution.
Yes, insufficient systems
Project governance should refer to corporate
governance matters relevant to the project - e.g.
financial control, BEE, standards, procedures, etc
Project governance should refer to corporate
governance
Again project governance should refer to corporate
governance matters relevant to the project - e.g.
Financial control, BEE, standards, procedures, etc.
Project governance should refer to corporate
governance.
Project control is the ‘How’ - detail matters.
Project governance refers to ? and project control
must have the detail on how to execute.
Project control is a subset of project governance
Project specific - High
Company specific - High
Country specific - Medium
Generic - Medium
Generic base with room for specifics
277
Project Governance for Capital Investments
Question 7 - Much effort currently goes
into the establishment of global
corporate governance principles. What
challenges need to be considered and
overcome in the development and
establishment of a formal global project
governance model for large capital
projects involving multiple countries and
companies?
Key Words / Phrases
Question 8 - How should role player
liability for eventual project performance
be incorporated in a global project
governance model?
Key Words / Phrases
Question 9 - Please provide any other
comments that you might have regarding
the development and implementation of
a project governance model.
Key Words / Phrases
2008
Senior management must understand project
management and must get involved and not only
support projects. Competent project staff are vital.
Understanding by senior management. Requires
competence.
Role players must be competent in project
management e.g. skills, knowledge, experience,
management and leadership on projects and not
only know how to run a business.
Competence and knowledge regarding projects
Project governance should be clearly spelled out in
the company project methodology. Methodologies
normally do not exist and hence the reason for project
over-runs (cost, time and quality).
Project governance part of methodology
278
Project Governance for Capital Investments
Respondent 4:
Name
Age
Country
Qualification
Experience
International Publications
Project Capital Value
Books Authored
Industry
Capacity
Position
Question 1- How would you define /
describe the concept ‘project
governance’?
Key Words / Phrases
Question 2 - Do current project
management frameworks and practices
fail to address project governance?
Please explain.
Key Words / Phrases
Respondent 4
51+
RSA
B-degree
25
0
US$ 1,000,000,000
0
Infrastructure
Client
Project Manager
The process of managing the project in terms of best
practices and applicable laws with adherence to
ethical principles.
Laws, principles, ethics, best practices
Not necessarily. Depends on the integrity of the client
and contractor and the image they have and want to
portray / uphold.
Maybe, level of integrity
Question 3 - What are the similarities
between corporate governance and
project governance?
Key Words / Phrases
Different ‘business’, but the same rules should apply.
Question 4 - What are the differences
between corporate governance and
project governance?
‘Corporate’ may imply a business existing to make a
profit, whereas a ‘project’ may have to be done to
create a platform / infrastructure to eventually make a
profit.
Key Words / Phrases
Question 5 - What are the differences
between project control and project
governance?
Same rules should apply
Difference in objectives / profit approach
Control is understood to be part of the project
management process, whilst the governance part
applies to the total project management.
Key Words / Phrases
Control involves process, project governance involves
overall project management
Question 6 - To what extent should a
project governance model for large
capital projects be project specific,
company specific, country specific or
generic?
Key Words / Phrases
A generic model could do, with adaptations to suit the
particular business or environment.
2008
Generic base with specifics
279
Project Governance for Capital Investments
Question 7 - Much effort currently goes
into the establishment of global
corporate governance principles. What
challenges need to be considered and
overcome in the development and
establishment of a formal global project
governance model for large capital
projects involving multiple countries and
companies?
Key Words / Phrases
Question 8 - How should role player
liability for eventual project performance
be incorporated in a global project
governance model?
Global trends should be considered. Different role
players may expect specific aspects, especially when
it comes to the parties that provide the funds.
Global view with financier inputs to be considered.
Difficult concept. No comment
Key Words / Phrases
Question 9 - Please provide any other
comments that you might have regarding
the development and implementation of
a project governance model.
Key Words / Phrases
2008
Why does it not yet exist? Who wants it and what will
entice parties to adopt and apply it? It has to be
simple and practical so that ordinary ‘project
managers’ can understand it, see the value and use it!
Simplicity, practical
280
Project Governance for Capital Investments
Respondent 5:
Name
Age
Country
Qualification
Experience
International Publications
Project Capital Value
Books Authored
Industry
Capacity
Position
Question 1- How would you define /
describe the concept ‘project governance’?
Key Words / Phrases
Question 2 - Do current project
management frameworks and practices fail
to address project governance? Please
explain.
Key Words / Phrases
Question 3 - What are the similarities
between corporate governance and project
governance?
Key Words / Phrases
Question 4 - What are the differences
between corporate governance and project
governance?
Key Words / Phrases
Question 5 - What are the differences
between project control and project
governance?
Key Words / Phrases
Question 6 - To what extent should a
project governance model for large capital
projects be project specific, company
specific, country specific or generic?
Key Words / Phrases
2008
Respondent 5
51+
RSA
M-degree
25
0
US$ 800,000,000
0
Mining
Client
Project Director
Management of the delivery of the business case
Delivering a business case
Generally they do fail because they are focused on
project delivery not business case delivery.
Yes, project - not business focused
Corporate governance delivers the overall business
value; project governance delivers individual project
business benefits. Project governance is a subset of
corporate governance.
Project governance is a subset of corporate
governance
Corporate is continuous, project is time bound.
Different timeframes
Project control is focused on project delivery; project
governance on business benefit delivery.
Project governance focus on business delivery
Generic models should be applicable to most
organisations.
Generic
281
Project Governance for Capital Investments
Question 7 - Much effort currently goes into
the establishment of global corporate
governance principles. What challenges
need to be considered and overcome in the
development and establishment of a formal
global project governance model for large
capital projects involving multiple countries
and companies?
Global corporate governance standards should
consider project governance.
Key Words / Phrases
Align project governance with corporate governance
Question 8 - How should role player liability
for eventual project performance be
incorporated in a global project governance
model?
It is not clear what is meant by 'liability'. If
accountability is meant - project governance models
must clearly show accountability vested in each role.
Key Words / Phrases
Must be clear on accountability
Question 9 - Please provide any other
comments that you might have regarding
the development and implementation of a
project governance model.
Key Words / Phrases
2008
282
Project Governance for Capital Investments
Respondent 6:
Name
Age
Country
Qualification
Experience
International Publications
Project Capital Value
Books Authored
Industry
Capacity
Position
Question 1- How would you define /
describe the concept ‘project governance’?
Key Words / Phrases
Question 2 - Do current project
management frameworks and practices fail
to address project governance? Please
explain.
Key Words / Phrases
Question 3 - What are the similarities
between corporate governance and project
governance?
Key Words / Phrases
Question 4 - What are the differences
between corporate governance and project
governance?
Key Words / Phrases
2008
Respondent 6
51+
UK
M-degree
25
0
US$ 1,000,000,000
0
Infrastructure
Consultant
Project Director
The necessary internal controls (approval, reporting
and escalation) associated with project delivery, but
integrated with corporate governance, in support of
overall board responsibility to deliver against
commitments.
Internal controls, integrate with corporate
governance, deliver against commitments
The framework and practices are available and, in
many cases, in place. However, it is more the
understanding and appropriate application that fails
projects. There is also the issue of cultural and
behavioural attitudes that need to change so that risk
is fully assessed and understood, rather than making
key investment decisions on 'gut feeling'.
No - failure in understanding and application
It is about applying controls appropriate to the risk of
delivering the expected outcomes of either
shareholders or stakeholders. This normally links
though focused controls covering risk and value
management, financial management and delivery
management (time, cost and outcome (quality).
Same
Corporate governance tends to focus on delivering
commitments through a 'steady state' business, as
opposed to usual environments where processes
have been clearly defined and normally mature.
Projects tend to operate in a dynamic environment,
where rapid decision-making is essential to maintain
progress and this requires a clearly delegated
authority framework, combined with short tolerance
based escalation and feedback processes. Project
governance must be integrated with corporate
governance and is further complicated where a
supply or delivery chain is involved.
Timeframes - requires different speeds i.t.o. decision
making. Integrate project governance with corporate
283
Project Governance for Capital Investments
governance
Question 5 - What are the differences
between project control and project
governance?
Key Words / Phrases
Question 6 - To what extent should a
project governance model for large capital
projects be project specific, company
specific, country specific or generic?
Key Words / Phrases
Question 7 - Much effort currently goes into
the establishment of global corporate
governance principles. What challenges
need to be considered and overcome in the
development and establishment of a formal
global project governance model for large
capital projects involving multiple countries
and companies?
Key Words / Phrases
Question 8 - How should role player liability
for eventual project performance be
incorporated in a global project governance
model?
Key Words / Phrases
2008
Project control is the complementary mechanistic
processes (change control, risk and issue
management, requirements capture, gateways and
procurement, for example) to be followed to support
good project governance. Governance is the
structure, cultural and operating environment created
to support the delivery, and includes engagement of
shareholders, ensuring strategic alignment with the
business needs and using information in support of
the decision-making process. Controls provide
systematic comfort, governance supports, making it
happen effectively and efficiently.
Project control is a subset of project governance.
Project governance sets the environment for project
control
I would subscribe to a project governance model
being generic as this creates a common language.
There are examples of good project governance
model available through Achieving Excellence in
Construction, PRINCE2 and Managing successful
Programme Effectively. Linking construction projects
with the corporate concepts of these methodologies
is possible and would be a great step forward - allow
them to use the existing models and tools that they
are good at and integrate these with corporate
models, allowing consistency to be established at the
right level.
Generic
Where large-scale projects are globally funded, such
principles are essential to ensure visibility and
transparency up and down the supply and delivery
chains. This is essential where delivery takes place in
countries where governance is talked about but not
practiced!!! Many construction projects are funded
through individual investment and there is a need to
ensure that the money is spent on what it was
intended for ... particularly in developing countries or
following major disasters. The challenge is not about
the process, but about changing hearts and minds,
as well as behaviour.
Financier input
I feel that liability is not so much a governance issue
but a legal, commercial and procurement issue - it is
important that these issues are resolved outside of
the delivery focus.
Liability not directly part of governance
284
Project Governance for Capital Investments
Question 9 - Please provide any other
comments that you might have regarding
the development and implementation of a
project governance model.
The Office of Government Commerce has done a
great deal to put in place some governance control
guidance that acts as a framework covering business
transformation projects as well as construction
projects. This guidance should be viewed like a
cooking recipe - the ingredients are the same
worldwide, but it is the chef that makes the difference
... adding the right amount of the appropriate
ingredients to produce a quality meal based on
understanding each guest’s tolerances, including
allergies!!!
Key Words / Phrases
2008
285
Project Governance for Capital Investments
Respondent 7:
Name
Age
Country
Qualification
Experience
International Publications
Project Capital Value
Books Authored
Industry
Capacity
Position
Question 1- How would you define /
describe the concept ‘project
governance’?
Key Words / Phrases
Question 2 - Do current project
management frameworks and practices
fail to address project governance?
Please explain.
Key Words / Phrases
Question 3 - What are the similarities
between corporate governance and
project governance?
Key Words / Phrases
Question 4 - What are the differences
between corporate governance and
project governance?
Key Words / Phrases
Question 5 - What are the differences
between project control and project
governance?
Key Words / Phrases
Question 6 - To what extent should a
project governance model for large
capital projects be project specific,
company specific, country specific or
generic?
2008
Participant 7
51+
RSA
B-degree
20
0
US$ 300,000,000
0
Mining
Client
Project Manager
Effective execution of capital projects to international
financial and governmental requirements.
Execution, international requirements
To a large degree, yes, as most PM groups lack
understanding of international requirements.
Yes, lack understanding of international requirements
There are certain management and reporting
requirements that align to each other (e.g. legal
compliances).
Same w.r.t. management and reporting
Corporate deals with company structures, reporting
thereon, etc. Project governance takes the corporate
and other requirements to the individual project, which
often require unique agreements, reporting
requirements, etc. (e.g. IMF).
Project governance brings corporate governance to
the project.
Project control deals with the day-to-day running of
the project in terms of time, cost, quality, etc.
Governance deals with the strategic issues relating to
that particular project (e.g. offshore banking).
Project control - day-to-day, Project governance is
more strategic
Difficult to state categorically, but there are a number
of common issues, no matter what company or
country.
286
Project Governance for Capital Investments
Key Words / Phrases
Question 7 - Much effort currently goes
in the establishment of global corporate
governance principles. What challenges
need to be considered and overcome in
the development and establishment of a
formal global project governance model
for large capital projects involving
multiple countries and companies?
Key Words / Phrases
Question 8 - How should role player
liability for eventual project performance
be incorporated in a global project
governance model?
Key Words / Phrases
Question 9 - Please provide any other
comments that you might have regarding
the development and implementation of
a project governance model.
Key Words / Phrases
2008
Generic base with room for specifics
There is a need for PM groups to determine
commonality of principles, no matter where a project
is to be executed. From this, a guideline can be
established on what are generic and what can be and
are specific to an individual country.
Obtain common principles, generic for overall
application
This is dependent on the authority given within
individual companies / practices. An ideal subject for
work shopping amongst practitioners.
Not clear, dependant on stakeholders
Many international projects suffer due to a lack of
attention to the governance issues, particular to the
country concerned. More time and cost is necessary
for obtaining local legal opinion and guidance,
particularly in some of the less common international
issues that pertain to that particular country (e.g. local
area development support
expectation).
Use generic and customise to country / project
287
Project Governance for Capital Investments
Respondent 8:
Name
Age
Country
Qualification
Experience
International Publications
Project Capital Value
Books Authored
Industry
Capacity
Position
Question 1- How would you define /
describe the concept project
governance?
Key Words / Phrases
Question 2 - Do current project
management frameworks and practices
fail to address project governance?
Please explain.
Key Words / Phrases
Question 3 - What are the similarities
between corporate governance and
project governance?
Respondent 8
51+
USA
PhD-degree
35
10
US$ 0
3
Academic
Client
Project Manager
Rules to govern decision-making, including election
and appointment of directors, managers, etc.
Rules, decision-making, appointment of authorities
Yes, they adopt a contractual risk allocation / shedding
approach. It fails in the face of significant changes
from baseline conditions.
Yes - focus too much on contractual risk allocation
Long term ability to weather significant changes in their
environment.
Key Words / Phrases
Question 4 - What are the differences
between corporate governance and
project governance?
Key Words / Phrases
Question 5 - What are the differences
between project control and project
governance?
Projects have a finite lifetime and clearer goals. But
they also often face more organised opposition.
Timeframe
Control comes from the days when a plan remained a
good plan. Control is about correcting deviations from a
plan. This approach breaks down when "the world
turns faster than the project churns"!
Key Words / Phrases
Question 6 - To what extent should a
project governance model for large
capital projects be project specific,
company specific, country specific or
generic?
Key Words / Phrases
2008
All of the above. Governance needs to
accommodate values like collectivism vs.
individualism, etc. And it needs to address the
kinds of decisions needed by different classes of
projects.
Generic base with room for specifics. Accommodate
different levels of decision-making
288
Project Governance for Capital Investments
Question 7 - Much effort currently goes
into the establishment of global
corporate governance principles. What
challenges need to be considered and
overcome in the development and
establishment of a formal global project
governance model for large capital
projects involving multiple countries and
companies?
Key Words / Phrases
Question 8 - How should role player
liability for eventual project performance
be incorporated in a global project
governance model?
The countries in which many global infrastructure
projects are being built have no rule of law, no property
rights, etc., which is not true in those places where
corporate governance is being promoted.
Apply to countries with no / weak CG
Question unclear
Key Words / Phrases
Question 9 - Please provide any other
comments that you might have regarding
the development and implementation of
a project governance model.
Key Words / Phrases
2008
289
Project Governance for Capital Investments
Respondent 9:
Name
Age
Country
Qualification
Experience
International Publications
Project Capital Value
Books Authored
Industry
Capacity
Position
Question 1- How would you define /
describe the concept ‘project
governance’?
Key Words / Phrases
Question 2 - Do current project
management frameworks and practices
fail to address project governance?
Please explain.
Key Words / Phrases
Question 3 - What are the similarities
between corporate governance and
project governance?
Key Words / Phrases
Question 4 - What are the differences
between corporate governance and
project governance?
Key Words / Phrases
2008
Participant 9
51+
UK
B-degree
10
US$ 200,000,000
Petrochemical
Client
Project Manager
Project governance is the set of management
systems, protocols and relationships between a
project's stakeholders and its executive managers.
Typically it is represented by a board of stakeholders
that approves the arrangements for the proper control
of the project and sets the policies and standards for
the way the project interacts with (say) government,
the public, statutory authorities, banks, and so on. A
system of
governance will often comprise high level statements
about how the project will be reviewed; how major
scope changes will be handled; risk management
standards; authorisations; communications; audit; the
upkeep and management of the business case; the
management of contingency; ethical standards;
employment policies, and so on.
Relationship between stakeholders and executive,
protocols, risk, audit, business case, ethics, policies,
procedures
The components of project governance are all there,
but it’s not treated as an integrated subject.
Yes - available but not integrated
They address the same range of issues.
Same
Corporate governance applies to an ongoing
enterprise and so it gives greater emphasis to longer
term issues than might apply to a project - such as
business continuity. However, the longer and larger
the project, the more its governance takes on the
aspect of corporate governance.
Timeframe
290
Project Governance for Capital Investments
Question 5 - What are the differences
between project control and project
governance?
Key Words / Phrases
Question 6 - To what extent should a
project governance model for large
capital projects be project specific,
company specific, country specific or
generic?
Key Words / Phrases
Question 7 - Much effort currently goes
into the establishment of global
corporate governance principles. What
challenges need to be considered and
overcome in the development and
establishment of a formal global project
governance model for large capital
projects involving multiple countries and
companies?
Key Words / Phrases
Question 8 - How should role player
liability for eventual project performance
be incorporated in a global project
governance model?
Key Words / Phrases
Question 9 - Please provide any other
comments that you might have regarding
the development and implementation of
a project governance model.
See my first answer. For example, project control
does not encompass policies on ethics or the
requirements of 'local content'.
Project governance operates at a more strategic level
The right balance needs to be struck between the
benefits of a comprehensive system of governance
and the excessive imposition of constraints on the
project. Broad principles, checklists and so on are
helpful. But then the particular circumstances need to
be examined and the 'least' amount of governance
imposed consistent with safeguarding the project.
Generic base with room for specifics
The danger is that nobody ever recommends 'less'
governance. So, in the build up to something 'global',
the constraints and requirements pile up to the point
where the project team are diverted from doing the job
and spend their time complying with the 'rules'. The
real intellectual challenge (far harder than making long
lists) is to devise a generic standard of efficiency and
effectiveness for project governance. This finesses
the difficulties of culture, project size, contract strategy
and so on. ? The generic guidance should help the
project sponsors find the least 'quantity' of project
governance sufficient to meet their specific needs.
Difficulty in simplicity, danger in ‘too many’ rules.
Not sure. But I observe that governance boards work
best in non-adversarial circumstances.
Beware of adversity
I'd refer you to the UK Association for Project
Management's guide to the governance of project
management. Not quite the same thing, but
a useful stepping off point.
Key Words / Phrases
2008
291
Project Governance for Capital Investments
Respondent 10:
Name
Age
Country
Qualification
Experience
International Publications
Project Capital Value
Books Authored
Industry
Capacity
Position
Question 1- How would you define /
describe the concept ‘project
governance’?
Key Words / Phrases
Question 2 - Do current project
management frameworks and practices
fail to address project governance?
Please explain.
Key Words / Phrases
Question 3 - What are the similarities
between corporate governance and
project governance?
Key Words / Phrases
Question 4 - What are the differences
between corporate governance and
project governance?
Key Words / Phrases
Question 5 - What are the differences
between project control and project
governance?
Key Words / Phrases
Question 6 - To what extent should a
project governance model for large
capital projects be project specific,
company specific, country specific or
generic?
2008
Respondent 10
51+
RSA
B-degree
27
0
US$ 3,000,000,000
0
Mining
Client
Project Director
A collection of policies, procedures and processes
applied to obtain the best value for funds employed by
an investor consistent with the final objectives as
defined by the investor.
Rules, policies, procedures, business case as defined
by the investor.
In most cases, frameworks and practices do not fail to
address project governance. Failure in project
governance often occurs because recognised
frameworks and practices are not adhered to.
No – frameworks available but not adhered to
Noting that project governance is aimed at more
specific goals and timeframes, and corporate
governance tends to be continuous over broader
goals and timeframes, the policies, processes and
procedures are the same.
Same, differ only in time
Specificity of goals and timeframes.
Timeframes
Project controls are part of the procedures and
processes that contribute to project governance.
Project control is a subset of project governance
The project governance model for large capital
projects should not vary to any large degree from
project to project, company to company or country to
country. However, certain policies, procedures and
processes may vary to satisfy specific requirements.
292
Project Governance for Capital Investments
Key Words / Phrases
Question 7 - Much effort currently goes
into the establishment of global
corporate governance principles. What
challenges need to be considered and
overcome in the development and
establishment of a formal global project
governance model for large capital
projects involving multiple countries and
companies?
Key Words / Phrases
Question 8 - How should role player
liability for eventual project performance
be incorporated in a global project
governance model?
Key Words / Phrases
Question 9 - Please provide any other
comments that you might have regarding
the development and implementation of
a project governance model.
Key Words / Phrases
Generic base with room for specifics
Within the broad challenge stated here, there are
many contributing challenges. The fundamental
challenge is to overcome the inflexibility of corporate
managers, project managers and fiscal regimes to
accept common standards for project governance.
Overcoming resistance from stakeholders
If project performance is well defined and variation
policies and procedures are well defined and applied,
liability can be ascribed and incorporated. Noting that
few individuals or companies have the capacity to
take unlimited liability.
Limited liability
There are a number of project governance models
available in the global corporate environment. The
failure to implement these has, in most cases, caused
project governance to fail.
Practical
Note: No references were given or supplied with respect to the ‘project
governance frameworks’ referred to.
2008
293
Project Governance for Capital Investments
Respondent 11:
Name
Age
Country
Qualification
Experience
International Publications
Project Capital Value
Books Authored
Industry
Capacity
Position
Question 1- How would you define /
describe the concept ‘project
governance’?
Key Words / Phrases
Question 2 - Do current project
management frameworks and practices
fail to address project governance?
Please explain.
Key Words / Phrases
2008
Respondent 11
41-50
UK
B-degree
22
US$ 12,000,000,000
Transport & Infrastructure
Consultant
Project Director
The common industry association with 'project
governance' is in relation to the formal monitoring and
auditing of a project and is normally associated with
pubic sector projects. This misses the fact that all
projects are governed to a greater or lesser degree
and that 'project governance' is simply another term
for 'project management'. What differentiates
governance from management is one is seen as a
formal process of recording, whilst the other is more
the action of implementing. To me, project
governance and project management are one and the
same; the subtle difference being that the term
governance is associated with the processes of
ensuring accurate records are kept of the decisions
made in implementing and managing a project. For
instance, establishing systems for recording meetings,
monitoring progress, accounting for project costs,
recording decisions, checking designs, etc., all form
part of project governance and are used to manage
the project by the management team.
Auditing, monitor, recording
In answering this question, one first needs to establish
the benchmark against which a judgement can be
made. Each project and each client will require a
different level of governance to be applied, and so
what may be sufficient for one project, may fall well
short for another. Many current project management
systems are process driven and are not intuitive. This
means that it is possible to fully comply with a defined
level of governance, yet still fail to deliver the right
project to a client. Most systems fail to account for the
non-linear nature of a project and the heavy reliance
on individual experience and knowledge. It is not
practices that need to be addressed, but rather the
risks associated with poor judgement.
Yes - experience, integration, require different levels
294
Project Governance for Capital Investments
Question 3 - What are the similarities
between corporate governance and
project governance?
Key Words / Phrases
Question 4 - What are the differences
between corporate governance and
project governance?
Key Words / Phrases
Question 5 - What are the differences
between project control and project
governance?
Key Words / Phrases
Question 6 - To what extent should a
project governance model for large
capital projects be project specific,
company specific, country specific or
generic?
Key Words / Phrases
Question 7 - Much effort currently goes
into the establishment of global
corporate governance principles. What
challenges need to be considered and
overcome in the development and
establishment of a formal global project
governance model for large capital
projects involving multiple countries and
companies?
Key Words / Phrases
2008
The scope for corporate governance has expanded
over the last twenty years from a financial based state
to one that includes other legal requirements
associated with health and safety legislation and
equal opportunities, etc. Project governance also has
to demonstrate compliance at a financial and health
and safety level.
Follow corporate governance developments
Corporate governance is more a macro state,
whereas project governance may have to operate at
the micro state. Again, the differences are greater
only as a consequence of the needs of the client.
Project governance micro, corporate governance
macro level
Project control is the level at which the project
management team and/or the client wish to retain
executive power. Project governance is the system
that is used to measure and record the project as it
progresses. Project governance can operate without
control, but control is control.
Project control is at project management level. Project
governance at macro level
Generic models are a good starting point and many
elements of the generic model will be found in
bespoke models, whether they be project, company or
country specific. The greatest danger is to try to
develop a generic model that can be applied to all
specific situations, as this model becomes
cumbersome and a hindrance to the delivery and
management of the project.
Generic base with room for specifics
The development of global governance principles are
of benefit to large corporate organisations,
governments and world organisations, such as the
World Bank, as it allows them to benchmark projects
against a target and reduces the learning curve for
their audit teams. Many of the core building blocks of
project governance can be combined into a global
model: however, such a model runs the risk that it will
simply become too cumbersome and impractical to
use, and will itself become the driver for projects,
rather than a tool to assist the management team and
client.
Difficulty in simplicity and practicality
295
Project Governance for Capital Investments
Question 8 - How should role player
liability for eventual project performance
be incorporated in a global project
governance model?
Not quite sure what you are getting at? Is this about
pain / gain clauses in contracts??
Key Words / Phrases
Question 9 - Please provide any other
comments that you might have regarding
the development and implementation of
a project governance model.
Key Words / Phrases
2008
A governance system should allow flexibility for the
management team to respond to the changing nature
of a project, but do so in a way that ensures the
decisions made are correctly documented.
Framework for decision-making
296
Project Governance for Capital Investments
Respondent 12:
Name
Age
Country
Qualification
Experience
International Publications
Project Capital Value
Books Authored
Industry
Capacity
Position
Question 1- How would you define /
describe the concept ‘project
governance’?
Key Words / Phrases
Respondent 12
41-50
RSA
M-degree
27
Question 2 - Do current project
management frameworks and practices
fail to address project governance?
Please explain.
Yes - insufficient attention is given to the potential risk
of self-interest and conflict of interest between the
various parties involved.
Key Words / Phrases
Question 3 - What are the similarities
between corporate governance and
project governance?
Key Words / Phrases
Question 4 - What are the differences
between corporate governance and
project governance?
Key Words / Phrases
Question 5 - What are the differences
between project control and project
governance?
Key Words / Phrases
Question 6 - To what extent should a
project governance model for large
capital projects be project specific,
company specific, country specific or
generic?
Key Words / Phrases
2008
US$ 2,500,000,000
1
Transport & Infrastructure
Consultant
Project Director
The application of the highest standard of ethics to the
management and implementation of projects.
Ethics
Yes - conflict of interest
Both involve the application of ethical standards.
Same in ethical standards
The different interests of the stakeholders and interest
groups
The relatively short term nature of projects compared
to long term interests of corporations.
Different sets of stakeholder interest due to
timeframes
Control implies ensuring things are done; governance
implies ensuring the correct things are done.
Project governance is validating
The more generic the better, it can be adapted to
specifics. The King II Report on corporate governance
is a good example of how generic / specific balance
can be struck.
Generic
297
Project Governance for Capital Investments
Question 7 - Much effort currently goes
in the establishment of global corporate
governance principles. What challenges
need to be considered and overcome in
the development and establishment of a
formal global project governance model
for large capital projects involving
multiple countries and companies?
Key Words / Phrases
Question 8 - How should role player
liability for eventual project performance
be incorporated in a global project
governance model?
Key Words / Phrases
Challenge is to get companies to accept and manage
the principles. It might be an option to make it part of
ISO 9000 on Total Quality Management.
Implementation challenge, standardise
Liability can be incorporated by including it in the Total
Quality Manual of the company.
Part of quality system
Question 9 - Please provide any other
comments that you might have regarding
the development and implementation of
a project governance model.
Key Words / Phrases
2008
298
Project Governance for Capital Investments
Respondent 13:
Name
Age
Country
Qualification
Experience
International Publications
Project Capital Value
Books Authored
Industry
Capacity
Position
Question 1- How would you define /
describe the concept ‘project
governance’?
Key Words / Phrases
Question 2 - Do current project
management frameworks and practices
fail to address project governance?
Please explain.
Key Words / Phrases
Question 3 - What are the similarities
between corporate governance and
project governance?
Key Words / Phrases
Question 4 - What are the differences
between corporate governance and
project governance?
Key Words / Phrases
2008
Respondent 13
41-50
RSA
PhD
22
0
US$ 450,000,000
Petrochemical
Client
Project Manager
Project Governance involves the methodologies,
structures and processes whereby the project is
directed (the setting of project objectives in line with
business strategy and objectives) and controlled (the
hands-on activity of executing or supervising project
resources' actions) to achieve the predetermined
project objectives.
Structures and processes, link business objectives /
strategies with project
No. The phased gate process approach provides a
framework for governance to ensure that business risk
is minimised and opportunities maximised. Yes, when
there is a lack of discipline or lack of understanding to
follow the phased gate process.
PM frameworks to be used, lack of discipline in
application
The requirements to: comply with regulations and
legislation, to lead / direct and control activities and
transparent reporting to stakeholders. The financial
governance and control is highly structured and
automated in an integrated workflow process and
system.
Compliance to rules and regulations, financial
governance
Project governance is on operational level, whereas
corporate governance is on the strategic level.
Project financial control is on transactional level,
whereas corporate financial direction is done to
ensure shareholder value. Project governance is
about doing things / projects right, and corporate
governance is about doing the right things / projects.
Project governance operational level, corporate
governance strategic
299
Project Governance for Capital Investments
Question 5 - What are the differences
between project control and project
governance?
Key Words / Phrases
Question 6 - To what extent should a
project governance model for large
capital projects be project specific,
company specific, country specific or
generic?
Key Words / Phrases
Question 7 - Much effort currently goes
into the establishment of global
corporate governance principles. What
challenges need to be considered and
overcome in the development and
establishment of a formal global project
governance model for large capital
projects involving multiple countries and
companies?
Key Words / Phrases
Question 8 - How should role player
liability for eventual project performance
be incorporated in a global project
governance model?
Key Words / Phrases
Question 9 - Please provide any other
comments that you might have regarding
the development and implementation of
a project governance model.
Key Words / Phrases
2008
Project control is a subset of project governance.
Project control involves all activities to ensure
compliance to standards (hands on), and project
governance involves the structures and activities that
ensure that the project meets the project objectives
(guidance).
Project control is a subset of project governance
The project governance model should be specific as
far as the framework for decision-making and risk
management and strategic guidance is concerned.
Methodologies based best practices should be
generic and used as a guideline that should be
customised and adopted for the specific country. The
controls to ensure compliance will be specific to the
governance environment, namely project specific
requirements and objectives, the country specifics like
culture, legislation, geography and economics.
Generic and adaptable
The challenges for a global project governance model
are the virtual environment, understanding of the
unfamiliar environment, support systems and
structures for remote teams.
Remote application. Virtual work
The liabilities should be clearly specified in the
contract in accordance with legislation and business
owner requirements. The necessary governance
forums (steering, progress, site and construction
meetings) and structures (work teams, management
teams, review teams, audit team), supported by
sufficient metrics, should be put in place to ensure
that the project is proactively controlled and guided
towards project success and performance.
Be clear on liabilities in contracts
The project governance needs to be incorporated in
the business processes and should not be an
intervention. A blanket approach should not be
followed on all projects, but rather tailored according
to the risk profile of the project. Self- governance with
tools and techniques should be employed as a first
prize where possible and sensible.
Be part of business process, not stand-alone. Self300
Project Governance for Capital Investments
governance
2008
301
Project Governance for Capital Investments
Respondent 14:
Name
Age
Country
Qualification
Experience
International Publications
Project Capital Value
Books Authored
Industry
Capacity
Position
Question 1- How would you define /
describe the concept ‘project
governance’?
Key Words / Phrases
Question 2 - Do current project
management frameworks and practices
fail to address project governance?
Please explain.
Key Words / Phrases
2008
Respondent 14
31-40
Nigeria
M-degree
11
0
US$ 1,500,000,000
Telecommunications
Client
Project Director
Project governance, for me, is the framework the
organisation provides wherein project officials of the
organisation (as well as 3rd parties to the project) must
execute projects. The term is all encompassing of the
organisation’s project management methodology (if
any), investment management methodology (if any), and
benefit realisation validation, etc. In the listed sector, it
will form a subset of corporate governance.
Framework, part of investment and benefits, include 3rd
parties, subset of corporate governance
I'd say yes. Most frameworks deal with the how, when
and where and does not cover the why. With why, I
refer to the fundamental reasons why a project should
be done in the first place. It focuses more on project
management issues and does not always assist in
integrating the project with the business track of the
organisation. This can become complex to define
across different industries and organisations but the
fundamentals should be the same. (Similar to the
fundamentals of corporate governance that are
universal across countries, industries and
organisations).
Yes - no integration between business and project
302
Project Governance for Capital Investments
Question 3 - What are the similarities
between corporate governance and
project governance?
Key Words / Phrases
Question 4 - What are the differences
between corporate governance and
project governance?
Key Words / Phrases
Question 5 - What are the differences
between project control and project
governance?
Key Words / Phrases
2008
To me, project governance is a subset of corporate
governance. In the latter it governs the different
relationships between management (middle, senior,
board) and stakeholders (shareholders and other
stakeholders) of organisations, as well as the framework
for overall "good" management (plan, lead, operate,
control - how measured, etc.) of organisations. Project
governance should also define the relationships
between the organisation’s management (board, senior
management, middle management, etc.) and the project
stakeholders (project managers, other project
professionals, 3rd party professionals, suppliers,
contractors, etc.), as well as the framework for the
"good" management of projects (methodologies,
measures of success, etc.) within the organisation. As
per King II reports, etc. where best practice i.t.o. Board
structures, etc. is defined, so must project governance
define the best practice for project steering committees,
etc. Corporate governance is also more focused on the
listed company sector, while project governance can
span much wider (private companies, government
projects, etc.). It overlaps on some level, but not
everywhere.
Subset – Project governance to detail for project
management what corporate governance details for
organisations! – (Good summary!!!) ?
Where CG is holistic i.t.o. listed companies, PG is more
focused on specific execution activities within the
organisation (listed, private government, etc.). It should
focus specific governance requirements to ensure
proper management of projects, i.e. provide a specific
framework for a project manager to manage within. It is
unique in nature and will integrate project management
into the organisation.
Corporate governance for listed companies, project
governance more at project level
Where project control only really focuses on the
execution phase of the project (although control is wider
as well) and is fundamentally concerned with cost,
quality and schedule management of the specific project
(therefore principally focusing on project management
track); project governance focuses on the project
framework within the business (therefore the business
track). Another way of looking at it is to say, the 1st is
concerned with how well the project is doing, while the
latter should test / question (throughout the project
lifecycle) the place, role, function, benefit and validity of
the specific project within the organisation’s overall
existence. Why are we doing this and should we be
doing this project, etc.
Project governance more strategic than project control
303
Project Governance for Capital Investments
Question 6 - To what extent should a
project governance model for large
capital projects be project specific,
company specific, country specific or
generic?
Key Words / Phrases
Question 7 - Much effort currently goes
into the establishment of global
corporate governance principles. What
challenges need to be considered and
overcome in the development and
establishment of a formal global project
governance model for large capital
projects involving multiple countries and
companies?
Key Words / Phrases
Question 8 - How should role player
liability for eventual project performance
be incorporated in a global project
governance model?
Key Words / Phrases
I think a model should be as generic as possible. This is
the starting point. What flows from this will be models
(from generic) that focus on different industries,
countries, project types, etc. It will come with time as the
industry matures and globalisation increases. Whether a
project is executed in the listed sector or government,
Monrovia or Nigeria, it is still a project (i.e. laws of
nature). It will continue to behave like a project and
therefore the need for the generic model (laws of
project) as a first step.
Generic to be adapted
1. People managing organisations do not necessarily
understand the project environment.
2. Project managers do not always understand
corporate governance and why it’s needed.
This misalignment is probably the biggest challenge to
overcome. People, people, people, and yet again
people, is the issue.
3. How long will it take to get project professionals in
tune with good corporate practice?
4. Politics may require an outcome of a project totally
out of sync with common sense and good project
practice.
5. Maybe (sure of it) some entities (governments,
organisations, individuals, etc.) do not want improved
control for "selfish" reasons.
6. Difference of opinions between professionals on what
should be in a global model.
7. Different industry specific requirements, tax
structures, government policies (free trade zones, etc.)
could play role.
8. Can think of a few more...
(Plenty) – to be considered in practical developments
It should most definitely be incorporated.
1. Common terminology to be established - project
sponsor = ...
2. Fiduciary duties of role players to be established =
maybe en-acted? (Like Engineering Act, Company Act
as example.) Tangible consequences ...
Be very clear
Question 9 - Please provide any other
comments that you might have regarding
the development and implementation of
a project governance model.
Key Words / Phrases
2008
304
Project Governance for Capital Investments
Respondent 15:
Name
Age
Country
Qualification
Experience
International Publications
Project Capital Value
Books Authored
Industry
Capacity
Position
Question 1- How would you define /
describe the concept ‘project
governance’?
Key Words / Phrases
Question 2 - Do current project
management frameworks and practices
fail to address project governance?
Please explain.
Key Words / Phrases
Question 3 - What are the similarities
between corporate governance and
project governance?
Key Words / Phrases
Question 4 - What are the differences
between corporate governance and
project governance?
Key Words / Phrases
Question 5 - What are the differences
between project control and project
governance?
Key Words / Phrases
Question 6 - To what extent should a
project governance model for large
capital projects be project specific,
company specific, country specific or
generic?
Respondent 15
51USA
PhD
43
20
US$ 0
8
Academic
Consultant
Project governance consists of the processes by
which project related decisions are authorized and
determined.
Processes, decisions, authorise
Most current project management frameworks
address implementation issues and fail to adequately
analyze the authority of the project leaders. Project
management frameworks primarily focus on
implementation issues.
Yes - current practices focus on implementation.
Corporate governance and project governance are
similar in as much as they address the authority of the
governing bodies.
Similar
Corporate governance tends to focus on strategic and
fiduciary issues. Project governance focuses more on
implementation and control issues.
Corporate governance is strategic, project governance
focus on implementation
Project control focuses primarily on budget / schedule
issues. Project governance focuses more on the
authority of the senior project team.
Project authorities
A project governance model for large capital projects
should relate to all of the issues listed. I believe it
would be difficult to develop a robust generic model
that would apply in all situations. ?
Key Words / Phrases
2008
305
Project Governance for Capital Investments
Question 7 - Much effort currently goes
into the establishment of global
corporate governance principles. What
challenges need to be considered and
overcome in the development and
establishment of a formal global project
governance model for large capital
projects involving multiple countries and
companies?
Key Words / Phrases
Question 8 - How should role player
liability for eventual project performance
be incorporated in a global project
governance model?
Key Words / Phrases
Question 9 - Please provide any other
comments that you might have regarding
the development and implementation of
a project governance model.
A formal global project governance model must focus
heavily on authorities and communication challenges.
Virtual teams will most likely be used extensively with
formal sign-off requirements.
Focus on authority and communication
A project governance team should have the same
liability as a board of directors. It is their job to
carefully preserve project assets and control project
expenditures.
Same liability as board of directors
This is a very salient current topic, since better project
governance should reduce runaway project spending,
just as good corporate governance reduces
uncontrolled losses.
Key Words / Phrases
2008
306
Project Governance for Capital Investments
Summaries from Respondent feedback:
Name
Age
Country
Qualification
Experience
International Publications
Project Capital Value
Books Authored
Industry
Capacity
Position
Question 1- How would you define /
describe the concept ‘project governance’?
Results (Delphi Round 1)
372
30
US$ 43,950,000,000
12
Project governance is a set of management
systems, rules, protocols, relationships and
structures that provides the framework within
which decisions are made for project
development and implementation to achieve
the intended business or strategic motivation.
Question 2 - Do current project
management frameworks and practices fail
to address project governance? Please
explain.
Overwhelmingly YES! Although some
guidelines exist on the governance of project
management, concerns were raised regarding:
1) the definition and management of risk
2) non-alignment and lack of integration with
business / strategic parameters
3) authority of project leaders
4) practical application of governance
concepts in projects, as well as
5) discipline to refine and apply project
governance principles.
Question 3 - What are the similarities
between corporate governance and project
governance?
General consensus was that, for project
governance the same principles apply as for
corporate governance. However, half the
respondents added that project governance
should not only be aligned with, but be a
subset of, corporate governance. Project
governance should extend the principles of
corporate governance to address the
uniqueness of the temporary nature and
relationships associated with projects. For
example, where corporate governance
addresses the composition and functioning of
the board, project governance should do the
same for the project steering committee.
Question 4 - What are the differences
between corporate governance and project
governance?
Corporate governance is very clear regarding
the level and detail of financial and legal
disclosure, while for project governance the
level and type of disclosure is not at all clear.
The difference in timeframes requires an
alternative approach to the process and speed
of decision- making.
2008
307
Project Governance for Capital Investments
Question 5 - What are the differences
between project control and project
governance?
Project control is a subset of project
governance. Project governance should be a
proactive measure that sets the scene and
framework within which project management,
and subsequently project control, should
function.
Question 6 - To what extent should a
project governance model for large capital
projects be project specific, company
specific, country specific or generic?
A project governance model should be largely
generic, with room to incorporate project
specific and unique requirements.
Question 7 - Much effort currently goes into
the establishment of global corporate
governance principles. What challenges
need to be considered and overcome in the
development and establishment of a formal
global project governance model for large
capital projects involving multiple countries
and companies?
Question 8 - How should role player liability
for eventual project performance be
incorporated in a global project governance
model?
Question 9 - Please provide any other
comments that you might have regarding
the development and implementation of a
project governance model.
2008
Challenges include:
Accommodating financier's requirements
and risks
2) application in countries with weak
corporate governance
3) apply in countries where senior / influential
individuals "do not want better control" for
selfish reasons
4) complexity of globalisation and virtual work
5) making project governance simple and
practical to apply, as well as
6) overcoming stakeholder resistance to
"another" form of statutory requirement.
1)
This question provided for the only real
difference in opinion. Approximately half of the
respondents believed that stakeholder liabilities
should be clearly defined in as much detail as
possible (as with board of directors in corporate
governance), while the other school of thought
argues any items or actions that could create
potential adversarial situations should be
avoided and handled outside the project
context.
The project governance model should be:
generic, with the possibility of incorporating
project specific requirements
2) very practical to use
3) a framework for decision-making and
4) contain an element that promotes selfgovernance.
Project governance should reduce runaway
project spending just as good corporate
governance reduces uncontrolled losses.
1)
308
Project Governance for Capital Investments
Appendix C
Delphi results: Round 2
This appendix contains the detailed feedback given by each respondent during the
second Delphi round. The input to the second Delphi round was the consolidated
answers derived from the first round. The proposed answers were sent to the sample
list of respondents and a total of 7 responded.
To keep the responses anonymous, each respondent was again allocated a number.
Each result table contains:
•
The respondent number
•
The nine questions, with proposed consolidated answers / descriptions
•
Feedback per respondent
The feedback was consolidated and used as input to either a third round of Delphi or
the development of the CPGF.
2008
309
Project Governance for Capital Investments
Respondent 1:
Questions
Delphi 1 Results
Question 1- How would you
define / describe the
concept ‘project
governance’?
Project governance is a set of management
systems, rules, protocols, relationships and
structures that provides the framework within which
decisions are made for project development and
implementation to achieve the intended business
or strategic motivation.
Question 2 - Do current
project management
frameworks and practices
fail to address project
governance? Please
explain.
Overwhelmingly YES! Although some guidelines
exist on the governance of project management,
concerns were raised regarding:
1) the definition and management of risk
2) non-alignment and integration with business /
strategic parameters
3) authority of project leaders
4) practical application of governance concepts in
projects, as well as
5) discipline to refine and apply project governance
principles.
Respondent 1
Good
I agree.
6)
Question 3 - What are the
similarities between
corporate governance and
project governance?
General consensus was that, for project
governance the same principles apply as for
corporate governance. However, half the
respondents added that project governance should
not only be aligned with, but be a subset of,
corporate governance. Project governance should
extend the principles of corporate governance to
address the uniqueness of the temporary nature
and relationships associated with projects. For
example, where corporate governance addresses
the composition and functioning of the board,
project governance should do the same for the
project steering committee.
Question 4 - What are the
differences between
corporate governance and
project governance?
Corporate governance is very clear regarding the
level and detail of financial and legal disclosure,
while for project governance the level and type of
disclosure is not at all clear. The difference in
timeframes requires an alternative approach to the
process and speed of decision-making.
Question 5 - What are the
differences between project
control and project
governance?
Project control is a subset of project governance.
Project governance should be a proactive measure
that sets the scene and framework within which
project management, and subsequently project
control, should function.
2008
Don’t forget the
chunkiness of
projects vs. the
continuous
nature of ongoing
management.
No
institutionalized
audit culture for
projects.
Agree
310
Project Governance for Capital Investments
Question 6 - To what extent
should a project
governance model for large
capital projects be project
specific, company specific,
country specific or
generic?
A project governance model should be largely
generic, with room to incorporate project specific
and unique requirements.
Question 7 - Much effort
currently goes into the
establishment of global
corporate governance
principles. What challenges
need to be considered and
overcome in the
development and
establishment of a formal
global project governance
model for large capital
projects involving multiple
countries and companies?
Challenges include:
1) Accommodating financier's requirements and
risks
2) application in countries with weak corporate
governance
3) apply in countries where senior / influential
individuals "do not want better control" for
selfish reasons
4) complexity of globalisation and virtual work
5) making project governance simple and practical
to apply, as well as
6) overcoming stakeholder resistance to "another"
form of statutory requirement.
Question 8 - How should
role player liability for
eventual project
performance be
incorporated in a global
project governance model?
This question provided for the only real difference
in opinion. Approximately half of the respondents
believed that stakeholder liabilities should be
clearly defined in as much detail as possible (as
with board of directors in corporate governance),
while the other school of thought argues any items
or actions that could create potential adversarial
situations should be avoided and handled outside
the project context.
Question 9 - Please provide
any other comments that
you might have regarding
the development and
implementation of a project
governance model.
The project governance model should be:
1) generic with the possibility of incorporating
project specific requirements
2) very practical to use
3) a framework for decision- making, and
4) contain an element that promotes selfgovernance. Project governance should reduce
runaway project spending just as good
corporate governance reduces uncontrolled
losses.
Additional comments
2008
Yes
Agree,
especially with
#5.
Just try to be
clear in
communications.
Agree
None
311
Project Governance for Capital Investments
Respondent 2:
Questions
Delphi 1 Results
Respondent 2
Question 1- How would you
define / describe the
concept ‘project
governance’?
Project governance is a set of management
systems, rules, protocols, relationships and
structures that provides the framework within
which decisions are made for project development
and implementation to achieve the intended
business or strategic motivation.
Sounds just
about right –
suggest that it is
brought into the
context on
internal controls
aligned with good
governance.
Question 2 - Do current
project management
frameworks and practices
fail to address project
governance? Please
explain.
Overwhelmingly YES! Although some guidelines
exist on the governance of project management,
concerns were raised regarding:
1) the definition and management of risk
2) non-alignment and integration with business /
strategic parameters
3) authority of project leaders
4) practical application of governance concepts in
projects, as well as
5) discipline to refine and apply project
governance principles.
We must
separate the
existing
frameworks from
that of people’s
behaviour – if all
executives
complied with the
intent of current
frameworks in
making decisions
then we would
see a big shift.
We must
differentiate
between
compliance,
adherence and
assurance.
Question 3 - What are the
similarities between
corporate governance and
project governance?
General consensus was that, for project
governance the same principles apply as for
corporate governance. However, half the
respondents added that project governance
should not only be aligned with, but be a subset
of, corporate governance. Project governance
should extend the principles of corporate
governance to address the uniqueness of the
temporary nature and relationships associated
with projects. For example, where corporate
governance addresses the composition and
functioning of the board, project governance
should do the same for the project steering
committee.
2008
No comment
312
Project Governance for Capital Investments
Question 4 - What are the
differences between
corporate governance and
project governance?
Corporate governance is very clear regarding the
level and detail of financial and legal disclosure,
while for project governance the level and type of
disclosure is not at all clear. The difference in
timeframes requires an alternative approach to
the process and speed of decision-making.
Question 5 - What are the
differences between project
control and project
governance?
Project control is a subset of project governance.
Project governance should be a proactive
measure that sets the scene and framework within
which project management, and subsequently
project control, should function.
Question 6 - To what extent
should a project
governance model for large
capital projects be project
specific, company specific,
country specific or
generic?
A project governance model should be largely
generic with room to incorporate project specific
and unique requirements.
2008
We must be
absolutely sure
about this
statement –
project
management is
an internal
mechanism for
delivering board
accountability for
delivery. The
financial and
legal aspects
must remain part
of the corporate
governance
function, rather
than establishing
a different set.
With the shift to
portfolio
management this
emphasis
becomes even
more important
as we try to get
control of the
overall corporate
investment plan,
which includes
delivery through
projects.
No comment
No comment
313
Project Governance for Capital Investments
Question 7 - Much effort
currently goes into the
establishment of global
corporate governance
principles. What challenges
need to be considered and
overcome towards the
development and
establishment of a formal
global project governance
model for large capital
projects involving multiple
countries and companies?
Challenges include:
1) Accommodating financier's requirements and
risks
2) application in countries with weak corporate
governance
3) apply in countries where senior / influential
individuals "do not want better control" for
selfish reasons
4) complexity of globalisation and virtual work
5) making project governance simple and
practical to apply, as well as
6) overcoming stakeholder resistance to "another"
form of statutory requirement.
Question 8 - How should
role player liability for
eventual project
performance be
incorporated in a global
project governance model?
This question provided for the only real difference
in opinion. Approximately half of the respondents
believed that stakeholder liabilities should be
clearly defined in as much detail as possible (as
with board of directors in corporate governance),
while the other school of thought argues any items
or actions that could create potential adversarial
situations should be avoided and handled outside
the project context.
The issue here is
that the ultimate
accountability for
delivering
outcomes rests
with the board or
directors and in
governance
terms this must
not be diluted to
project boards.
There would
appear to be
confusion around
accountability,
responsibility and
devolved
ownership.
Question 9 - Please provide
any other comments that
you might have regarding
the development and
implementation of a project
governance model.
The project governance model should be:
1) generic with the possibility the possibility of
incorporating project specific requirements
2) very practical to use
3) a framework for decision-making, and
4) contain an element that promotes selfgovernance. Project governance should reduce
runaway project spending just as good
corporate governance reduces uncontrolled
losses.
The genesis
element allows
us all to speak a
common
language. Project
governance, in
itself, reduces
runaway projects
– this totally
depends on the
attitude and
behaviour of
those executives
filling governance
roles.
Additional comments
2008
Global funding
demands robust
governance up
and down the
supply and
delivery chain –
we need to retain
a flexible toolkit
that allows us to
adopt a risk
based control
environment.
None
314
Project Governance for Capital Investments
Respondent 3:
Question
Delphi 1 Results
Question 1- How would you
define / describe the
concept project
governance?
Project governance is a set of management
systems, rules, protocols, relationships and
structures that provides the framework within
which decisions are made for project
development and implementation to achieve the
intended business or strategic motivation.
Question 2 - Do current
project management
frameworks and practices
fail to address project
governance? Please explain.
Overwhelmingly, YES! Although some guidelines
exist on the governance of project management,
concerns were raised regarding:
1) the definition and management of risk
2) non-alignment and integration with business /
strategic parameters
3) authority of project leaders
4) practical application of governance concepts
in projects, as well as
5) discipline to refine and apply project
governance principles.
Question 3 - What are the
similarities between
corporate governance and
project governance?
General was consensus that, for project
governance, the same principles apply as for
corporate governance. However, half the
respondents added that project governance
should not only be aligned with, but be a subset
of, corporate governance. Project governance
should extend the principles of corporate
governance to address the uniqueness of the
temporary nature and relationships associated
with projects. For example, where corporate
governance addresses the composition and
functioning of the board, project governance
should do the same for the project steering
committee.
Question 4 - What are the
differences between
corporate governance and
project governance?
Corporate governance is very clear regarding the
level and detail of financial and legal disclosure,
while for project governance the level and type of
disclosure is not at all clear. The difference in
timeframes requires an alternative approach to
the process and speed of decision- making.
Question 5 - What are the
differences between project
control and project
governance?
Project control is a subset of project governance.
Project governance should be a proactive
measure that sets the scene and framework
within which project management, and
subsequently project control, should function.
2008
Respondent 3
No comments
Concur
Concur
Agreed
315
Project Governance for Capital Investments
Question 6 - To what extent
should a project governance
model for large capital
projects be project specific,
company specific, country
specific or generic?
Question 7 - Much effort
currently goes into the
establishment of global
corporate governance
principles. What challenges
need to be considered and
overcome in the
development and
establishment of a formal
global project governance
model for large capital
projects involving multiple
countries and companies?
Question 8 - How should
role player liability for
eventual project
performance be
incorporated in a global
project governance model?
Question 9 - Please provide
any other comments that
you might have regarding
the development and
implementation of a project
governance model.
Additional comments
2008
A project governance model should be largely
generic, with room to incorporate project specific
and unique requirements.
Agreed
Challenges include:
Accommodating financier's requirements and
risks
2) application in countries with weak corporate
governance
3) apply in countries where senior / influential
individuals "do not want better control" for
selfish reasons
4) complexity of globalisation and virtual work
5) making project governance simple and
practical to apply, as well as
6) overcoming stakeholder resistance to
"another" form of statutory requirement.
1)
This question provided for the only real difference
in opinion. Approximately half of the respondents
believed that stakeholder liabilities should be
clearly defined in as much detail as possible (as
with board of directors in corporate governance),
while the other school of thought argues any
items or actions that could create potential
adversarial situations should be avoided and
handled outside the project context.
The project governance model should be:
generic, with the possibility of incorporating
project specific requirements
2) very practical to use
3) a framework for decision- making, and
4) contain an element that promotes selfgovernance. Project governance should
reduce runaway project spending just as
good corporate governance reduces
uncontrolled losses.
Agreed
Suggest legal
opinion
1)
Agreed
None
316
Project Governance for Capital Investments
Respondent 4:
Question
Delphi 1 Results
Question 1- How would you
define / describe the concept
‘project governance’?
Project governance is a set of management
systems, rules, protocols, relationships and
structures that provides the framework
within which decisions are made for project
development and implementation to achieve
the intended business or strategic
motivation.
Question 2 - Do current
project management
frameworks and practices fail
to address project
governance? Please explain.
Overwhelmingly YES! Although some
guidelines exist on the governance of
project management, concerns were raised
regarding:
1) the definition and management of risk
2) non-alignment and integration with
business / strategic parameters
3) authority of project leaders
4) practical application of governance
concepts in projects, as well as
5) discipline to refine and apply project
governance principles.
Question 3 - What are the
similarities between
corporate governance and
project governance?
General consensus was that, for project
governance the same principles apply as for
corporate governance. However, half the
respondents added that project governance
should not only be aligned with, but be a
subset of, corporate governance. Project
governance should extend the principles of
corporate governance to address the
uniqueness of the temporary nature and
relationships associated with projects. For
example, where corporate governance
addresses the composition and functioning
of the board, project governance should do
the same for the project steering committee.
Question 4 - What are the
differences between
corporate governance and
project governance?
2008
Corporate governance is very clear
regarding the level and detail of financial
and legal disclosure, while for project
governance the level and type of disclosure
is not at all clear. The difference in
timeframes requires an alternative approach
to the process and speed of decisionmaking.
Respondent 4
… within which
decisions are
made, progress is
monitored,
activities controlled
and variations
managed, for
project…
The failure, in
general, to ascribe
or accept
accountability
needs to be noted.
Agreed
Agreed
317
Project Governance for Capital Investments
Question 5 - What are the
differences between project
control and project
governance?
Project control is a subset of project
governance. Project governance should be
a proactive measure that sets the scene
and framework within which project
management, and subsequently project
control, should function.
Question 6 - To what extent
should a project governance
model for large capital
projects be project specific,
company specific, country
specific or generic?
A project governance model should be
largely generic with room to incorporate
project specific and unique requirements.
Question 7 - Much effort
currently goes into the
establishment of global
corporate governance
principles. What challenges
need to be considered and
overcome in the development
and establishment of a
formal global project
governance model for large
capital projects involving
multiple countries and
companies?
Question 8 - How should role
player liability for eventual
project performance be
incorporated in a global
project governance model?
2008
Agreed
Agreed
Challenges include:
Accommodating financier's requirements
and risks
2) application in countries with weak
corporate governance
3) apply in countries where senior /
influential individuals "do not want better
control" for selfish reasons
4) complexity of globalisation and virtual
work
5) making project governance simple and
practical to apply, as well as
6) overcoming stakeholder resistance to
"another" form of statutory requirements
The reality that
making things
more difficult to do
results in things not
being done should
emerge in this
response. There is
an overwhelming
challenge to make
good project
governance doable, without
making things
more complicated
or cumbersome.
This question provided for the only real
difference in opinion. Approximately half of
the respondents believed that stakeholder
liabilities should be clearly defined in as
much detail as possible (as with board of
directors in corporate governance), while
the other school of thought argues any
items or actions that could create potential
adversarial situations should be avoided
and handled outside the project context.
I support the
school that
proposes defined
liability and
accountability. The
relationships have
to be sorted out
before the action
starts on a basis of
well defined roles,
responsibilities,
accountabilities
and liabilities.
Legal terms are
often the obstacle.
1)
318
Project Governance for Capital Investments
Question 9 - Please provide
any other comments that you
might have regarding the
development and
implementation of a project
governance model.
Additional comments
2008
The project governance model should be:
generic, with the possibility of
incorporating project specific
requirements
2) very practical to use
3) a framework for decision-making, and
4) contain an element that promotes selfgovernance. Project governance should
reduce runaway project spending just as
good corporate governance reduces
uncontrolled losses.
1)
The element of
legal standing of
the project
governance model
is inadequately
addressed in this
list of responses.
Sound project
governance is
based on a real
integration with the
legal regime of the
environment in
which the project is
developed.
319
Project Governance for Capital Investments
Respondent 5:
Name
Delphi 1 Results
Respondent 5
Question 1- How would you
define / describe the
concept ‘project
governance’?
Project governance is a set of management
systems, rules, protocols, relationships and
structures that provides the framework
within which decisions are made for project
development and implementation to achieve
the intended business or strategic
motivation.
Governance is mostly
about two kinds of
rules:
1) rules that define the
access and
participation rights of
stakeholders in setting
goals and direction for
a project; and
2) rules for ensuring
transparency and
accountability to
eliminate corruption,
nepotism, etc.
Everything else is
either included in
leadership or
management, as they
are typically
understood.
Question 2 - Do current
project management
frameworks and practices
fail to address project
governance? Please
explain.
Overwhelmingly YES! Although some
guidelines exist on the governance of
project management, concerns were raised
regarding:
1) the definition and management of risk
2) non-alignment and integration with
business / strategic parameters
3) authority of project leaders
4) practical application of governance
concepts in projects, as well as
5) discipline to refine and apply project
governance principles.
Question 3 - What are the
similarities between
corporate governance and
project governance?
General consensus was that, for project
governance the same principles apply as for
corporate governance. However, half the
respondents added that project governance
should not only be aligned with, but be a
subset of, corporate governance. Project
governance should extend the principles of
corporate governance to address the
uniqueness of the temporary nature and
relationships associated with projects. For
example, where corporate governance
addresses the composition and functioning
of the board, project governance should do
the same for the project steering committee.
2008
Yes, especially with
regard to defining rights
of access and
channelling the
participation of
stakeholders.
The long expected
duration on ongoing
enterprises means that
they must have rules
(e.g. in their articles of
incorporation and bylaws) about how to set
up processes and
participation rights for
making changes in
function, structure and
behaviour of the
enterprise to deal with
drastically different
circumstances. AS
BOT and similar private
/ public partnership
projects extend the
duration of projects out
to 30 years and more 320
Project Governance for Capital Investments
the same sets of issues
arise. Such projects
should have the
equivalent of articles
and by-laws that can
address not just
governance of the
investing corporation,
its shareholders,
managers and
directors, but also
governance of a much
wider group of
stakeholders, who may
assert legitimate - or
illegitimate - claims
against the assets of
the long-lived project.
Question 4 - What are the
differences between
corporate governance and
project governance?
Corporate governance is very clear
regarding the level and detail of financial
and legal disclosure, while for project
governance the level and type of disclosure
is not at all clear. The difference in
timeframes requires an alternative approach
to the process and speed of decisionmaking.
No comment
Question 5 - What are the
differences between project
control and project
governance?
Project control is a subset of project
governance. Project governance should be
a proactive measure that sets the scene
and framework within which project
management, and subsequently project
control, should function.
Some aspects of
project control are
associated with
governance. Others are
associated with
management of project.
For governance
purposes, reports and
audits should be
carried out by
disinterested third
parties.
Question 6 - To what extent
should a project
governance model for large
capital projects be project
specific, company specific,
country specific or
generic?
A project governance model should be
largely generic, with room to incorporate
project specific and unique requirements.
I disagree strongly,
there are so many
different kinds of
projects that one would
have totally different
kinds of governance
arrangements for the
design and
construction of a major
office building versus
the shaping,
conceptual design,
design, construction
2008
321
Project Governance for Capital Investments
and operation of a
long-lived BOT project.
Question 7 - Much effort
currently goes into the
establishment of global
corporate governance
principles. What challenges
need to be considered and
overcome in the
development and
establishment of a formal
global project governance
model for large capital
projects involving multiple
countries and companies?
Challenges include:
1) Accommodating financier's requirements
and risks
2) application in countries with weak
corporate governance
3) apply in countries where senior /
influential individuals "do not want better
control" for selfish reasons
4) complexity of globalisation and virtual
work
5) making project governance simple and
practical to apply, as well as
6) overcoming stakeholder resistance to
"another" form of statutory requirement.
One of the major
issues - perhaps the
major issue associated with
development of such
projects is the way in
which fees will be
regulated over the long
life of the project. This
was the downfall of
projects such as
Dhabol (power - India)
and Cochabamba
(water supply - Bolivia).
Question 8 - How should
role player liability for
eventual project
performance be
incorporated in a global
project governance model?
This question provided for the only real
difference in opinion. Approximately half of
the respondents believed that stakeholder
liabilities should be clearly defined in as
much detail as possible (as with board of
directors in corporate governance), while
the other school of thought argues any
items or actions that could create potential
adversarial situations should be avoided
and handled outside the project context.
If adversarial issues
are handled outside of
corporate governance,
we will never evolve a
common law to help us
shape the governance
of large projects.
International treaties
regarding mediation
and arbitration are
beginning to create a
relatively standard way
for dealing with at least
some situations.
Question 9 - Please provide
any other comments that
you might have regarding
the development and
implementation of a project
governance model.
The project governance model should be:
1) generic, with the possibility of
incorporating project specific
requirements
2) very practical to use
3) a framework for decision-making, and
4) contain an element that promotes selfgovernance. Project governance should
reduce runaway project spending just as
good corporate governance reduces
uncontrolled losses.
Additional comments
2008
No comments
322
Project Governance for Capital Investments
Respondent 6:
Questions
Delphi 1 Results
Question 1- How would you
define / describe the
concept ‘project
governance’?
Project governance is a set of management
systems, rules, protocols, relationships and
structures that provides the framework within
which decisions are made for project
development and implementation to achieve the
intended business or strategic motivation.
Question 2 - Do current
project management
frameworks and practices
fail to address project
governance? Please
explain.
Overwhelmingly YES! Although some guidelines
exist on the governance of project management,
concerns were raised regarding:
1) the definition and management of risk
2) non-alignment and integration with business /
strategic parameters
3) authority of project leaders
4) practical application of governance concepts
in projects as well as
5) discipline to refine and apply project
governance principles.
Question 3 - What are the
similarities between
corporate governance and
project governance?
General consensus was that, for project
governance the same principles apply as for
corporate governance. However, half the
respondents added that project governance
should not only be aligned with, but be a subset
of, corporate governance. Project governance
should extend the principles of corporate
governance to address the uniqueness of the
temporary nature and relationships associated
with projects. For example, where corporate
governance addresses the composition and
functioning of the board, project governance
should do the same for the project steering
committee.
Question 4 - What are the
differences between
corporate governance and
project governance?
2008
Corporate governance is very clear regarding
the level and detail of financial and legal
disclosure, while for project governance the
level and type of disclosure is not at all clear.
The difference in timeframes requires an
alternative approach to the process and speed
of decision- making.
Respondent 6
OK
OK
Agree
The project
environment is
much more
dynamic than a
corporate
environment, so
governance
processes and
frameworks must
be more
responsive.
323
Project Governance for Capital Investments
Question 5 - What are the
differences between project
control and project
governance?
Project control is a subset of project
governance. Project governance should be a
proactive measure that sets the scene and
framework within which project management,
and subsequently project control, should
function.
Question 6 - To what extent
should a project
governance model for large
capital projects be project
specific, company specific,
country specific or
generic?
A project governance model should be largely
generic, with room to incorporate project specific
and unique requirements.
Question 7 - Much effort
currently goes into the
establishment of global
corporate governance
principles. What challenges
need to be considered and
overcome in the
development and
establishment of a formal
global project governance
model for large capital
projects involving multiple
countries and companies?
Challenges include:
1) Accommodating financier's requirements and
risks
2) application in countries with weak corporate
governance
3) apply in countries where senior / influential
individuals "do not want better control" for
selfish reasons
4) complexity of globalisation and virtual work
5) making project governance simple and
practical to apply, as well as
6) overcoming stakeholder resistance to
"another" form of statutory requirement.
Question 8 - How should
role player liability for
eventual project
performance be
incorporated in a global
project governance model?
This question provided for the only real
difference in opinion. Approximately half of the
respondents believed that stakeholder liabilities
should be clearly defined in as much detail as
possible (as with board of directors in corporate
governance), while the other school of thought
argues any items or actions that could create
potential adversarial situations should be
avoided and handled outside the project
context.
2008
OK
OK
Agree
Role player liability
should read ‘role
player
accountability’, as I
understand the
question. The
governance
framework should
place appropriate
performance and
compliance
requirements
(appropriate at all
levels) on those
accountable for
project benefits
delivery.
324
Project Governance for Capital Investments
Question 9 - Please provide
any other comments that
you might have regarding
the development and
implementation of a project
governance model.
Additional comments
2008
The project governance model should be:
1) generic, with the possibility of incorporating
project specific requirements
2) very practical to use
3) a framework for decision-making, and
4) contain an element that promotes selfgovernance. Project governance should
reduce runaway project spending just as
good corporate governance reduces
uncontrolled losses.
No comments
No comments
325
Project Governance for Capital Investments
Respondent 7:
Questions
Delphi 1 Results
Question 1- How would you
define / describe the
concept ‘project
governance’?
Project governance is a set of management
systems, rules, protocols, relationships and
structures that provides the framework within
which decisions are made for project
development and implementation to achieve the
intended business or strategic motivation.
Question 2 - Do current
project management
frameworks and practices
fail to address project
governance? Please
explain.
Overwhelmingly YES! Although some guidelines
exist on the governance of project management,
concerns were raised regarding:
1) the definition and management of risk
2) non-alignment and integration with business /
strategic parameters
3) authority of project leaders
4) practical application of governance concepts
in projects as well as
5) discipline to refine and apply project
governance principles.
Question 3 - What are the
similarities between
corporate governance and
project governance?
General consensus was that, for project
governance the same principles apply as for
corporate governance. However, half the
respondents added that project governance
should not only be aligned with, but be a subset
of, corporate governance. Project governance
should extend the principles of corporate
governance to address the uniqueness of the
temporary nature and relationships associated
with projects. For example, where corporate
governance addresses the composition and
functioning of the board, project governance
should do the same for the project steering
committee.
Question 4 - What are the
differences between
corporate governance and
project governance?
Corporate governance is very clear regarding
the level and detail of financial and legal
disclosure, while for project governance the
level and type of disclosure is not at all clear.
The difference in timeframes requires an
alternative approach to the process and speed
of decision- making.
Question 5 - What are the
differences between project
control and project
governance?
Project control is a subset of project
governance. Project governance should be a
proactive measure that sets the scene and
framework within which project management,
and subsequently project control, should
function.
2008
Respondent 7
OK
OK
OK
OK
OK
326
Project Governance for Capital Investments
Question 6 - To what extent
should a project
governance model for large
capital projects be project
specific, company specific,
country specific or
generic?
A project governance model should be largely
generic, with room to incorporate project
specific and unique requirements.
Question 7 - Much effort
currently goes into the
establishment of global
corporate governance
principles. What challenges
need to be considered and
overcome in the
development and
establishment of a formal
global project governance
model for large capital
projects involving multiple
countries and companies?
Challenges include:
1) Accommodating financier's requirements and
risks
2) application in countries with weak corporate
governance
3) apply in countries where senior / influential
individuals "do not want better control" for
selfish reasons
4) complexity of globalisation and virtual work
5) making project governance simple and
practical to apply, as well as
6) overcoming stakeholder resistance to
"another" form of statutory requirement.
Question 8 - How should
role player liability for
eventual project
performance be
incorporated in a global
project governance model?
This question provided for the only real
difference in opinion. Approximately half of the
respondents believed that stakeholder liabilities
should be clearly defined in as much detail as
possible (as with board of directors in corporate
governance), while the other school of thought
argues any items or actions that could create
potential adversarial situations should be
avoided and handled outside the project
context.
Question 9 - Please provide
any other comments that
you might have regarding
the development and
implementation of a project
governance model.
The project governance model should be:
1) generic, with the possibility of incorporating
project specific requirements
2) very practical to use
3) a framework for decision-making, and
4) contain an element that promotes selfgovernance. Project governance should
reduce runaway project spending just as
good corporate governance reduces
uncontrolled losses.
Additional comments
2008
OK
OK
OK
OK
Important to ensure
that the
governance model
that is established
provides flexibility
as per the nature
and point in lifecycle of the project,
i.e. looser control
measures initially
327
Project Governance for Capital Investments
that tighten up as
the project /
organisation
matures. What will
be the
requirements on
project
professionals in this
case?
2008
328
Project Governance for Capital Investments
Appendix D
Case study protocol
This appendix provides examples of:
•
The letter of invitation issued to the case study participants.
•
The information sheet forwarded to each participant prior to the NGT
meeting.
2008
329
Project Governance for Capital Investments
Tel: 012 420 2822
Cel: 082 497 2453
Fax: (012) 362-5307
e-mail: [email protected]
Faculty of Engineering,
The Built Environment and
Information Technology
Department of Engineering
and Technology Management
01 March 2007
Project Governance for Large Capital Projects – Case Studies
Dear Rob,
Thank you for your willingness to participate in this research exercise. I realise your
time is valuable, as is your experience. The paragraphs below provide a short
background of the study I am conducting, the work done so far, and the next steps
where I need your, and other colleagues’ inputs.
Background
The overall performance of large capital projects (> R500 million) remains a concern
worldwide. Various studies on these large projects shows that although we have
many project management tools, techniques, training and qualifications, the
challenge of completing projects on time, within budget and excellent performance
consistently remains a problem. Although I realise there is no ‘magic wand’ I believe
that projects are often ‘set-up’ for failure, meaning that the end result can often be
traced back to poor management of the initial stages of the project.
In setting up a project, I went and had a look at what is done in other areas of
industry, especially operating companies. There is a belief, which I support, that a
project is a ‘temporary company’. To set the rules for establishing and running a
company, the formalisation and adherence to corporate governance principles,
guidelines, and even laws (Sarbanes Oxley in the USA), are paramount, and unique
to each country. Because of the global nature of large capital projects, involving
multiple companies from multiple countries, the application of these corporate
governance principles becomes troublesome. In recent years the term ‘project
governance’ has surfaced, but from discussions and readings it became clear that
there are many views of what this entails, including IT protection, information
management, adherence to methodologies, etc. However, during my discussions
with project practitioners, I realised that there is still a need to address the upfront
phases of a project more formally, setting the scene and framework for the project
2008
330
Project Governance for Capital Investments
manager to function within. In many a discussion, the term ‘project governance’ was
used. This observation called for further investigation.
Work done so far
The topic for the research evolved into “Project Governance for Large Capital
Projects”. A Delphi study was conducted among more than 30 project practitioners
and academics around the globe to define the concept of “project governance”, its
differentiation from project control, its contents and potential value. The study also
confirmed the belief that current project management theory does not address project
governance formally.
From this study, a framework for a concept project governance model (CPGM) was
derived. The framework was viewed against various law cases concerning large
capital projects, to assess whether the contents address the key issues that resulted
in a lawsuit.
Next step
To conclude the study, I need to conduct 3 to 4 case studies on large capital projects.
The aim of the case studies is to assess the level to which the principles of project
governance were applied formally and informally on the projects and what the impact
of the principles were on project outcome. I plan to conduct a NGT (Nominal Group
Technique) exercise with key project role players, preferably from various
stakeholder groups (this might not always be possible, but senior people on the
project need to participate). The group participating should have 4 to 8 members and
the exercise will take about 3 hours.
I will appreciate it if you could propose a list of participants, their contact numbers
and a suitable date for you (potential dates are 19,20, 29, 30 March 2007). I will then
arrange a venue, and transport if required.
Looking forward to a most interesting session.
Regards
Giel Bekker
Senior Lecturer & Researcher
Prof M W Pretorius
Head of Department: Engineering and Technology Management
2008
331
Project Governance for Capital Investments
Information Sheet
Nominal Group Exercise (March 2007)
Project Governance for Large Capital Projects
Leading up to the Nominal Group exercise, some research has been done to
determine the definition of Project Governance as well as key components of
such a typical project governance framework.
The key objective of the Nominal Group exercise is to review the contents of
the framework, its validity and applicability and propose improvements.
Respondents’ Profile
Participant age bracket
No of participants
21-30
31-40
1
Highest Academic Qualification
No of participants
Experience
Total
Average/participant
Number of international publications
Number of books authored
Capital value of projects managed by
respondents
Industries
- Mining
- Petrochem
- Infrastructure & Transport
- Telecommunications
- Academia
Capacity
Consultant
Client
Country Responses
South Africa
United States of America
Australia
United Kingdom
Brazil
Sweden
Denmark
Nigeria
Practitioner vs. Academia Responses
Academia
Practitioners
Total
B-degree
8
M-degree
4
2008
41-50
3
51+
11
PhD
3
372 years
24.8 years
30
12
US$ 43,950,000,000
4
4
4
1
2
4
11
Sent out
14
6
2
6
1
1
1
1
Sent out
8
24
32
Received
9
2
0
3
0
0
0
1
Received
2
13
15
% Response
64%
33%
0%
50%
0%
0%
0%
100%
% Response
25%
54%
332
Project Governance for Capital Investments
To initiate the study an in-depth literature study, and a dual-round Delphi
study, were conducted among leading project management practitioners and
academics. The summary profile of the Delphi respondents is given above
(Respondents’ Profile).
The key questions posted to the participants are given below, with the
resulting answer for each question provided. The answers to the questions
were used do develop the concept project governance framework to be tested
against various case studies.
Question 1- How would you define / describe the concept project governance?
Project governance is a set of management systems, rules, protocols,
relationships and structures that provide the framework within which decisions
are made for project development and implementation to achieve the intended
business or strategic motivation.
Question 2 - Do current project management frameworks and practices fail to
address project governance? Please explain.
Overwhelmingly NEGATIVE.
Although some guidelines exist on the governance of project management,
concerns were raised regarding (1) the definition and management of risk, (2)
non-alignment and lack of integration with business / strategic parameters (3)
authority of project leaders, (4) practical application of governance concepts in
projects, as well as (5) discipline to refine and apply project governance
principles.
Question 3 - What are the similarities between corporate governance and
project governance?
2008
333
Project Governance for Capital Investments
General consensus was that for project governance the same principles apply as
for corporate governance. However, half the respondents added that project
governance should not only be aligned with, but be a subset of corporate
governance. Project governance should extend the principles of corporate
governance to address the uniqueness of the temporary nature and relationships
associated with projects. For example, where corporate governance addresses
the composition and functioning of the board, project governance should do the
same for the project steering committee.
Question 4 - What are the differences between corporate governance and
project governance?
Corporate governance is very clear on the level and detail of financial and legal
disclosure, while for project governance the level and type of disclosure is not at
all clear. The difference in timeframes requires an alternative approach to the
process and speed of decision-making.
Question 5 - What are the differences between project control and project
governance?
Project control is a subset of project governance. Project governance should be a
proactive measure that sets the scene and framework within which project
management, and subsequently project control, should function.
Question 6 - To what extent should a project governance model for large
capital projects be project specific, company specific, country specific or
generic?
A project governance model should be largely generic, with room to incorporate
project specific and unique requirements.
2008
334
Project Governance for Capital Investments
Question 7 - Much effort currently goes into the establishment of global
corporate governance principles. What challenges need to be considered and
overcome in the development and establishment of a formal global project
governance model for large capital projects involving multiple countries and
companies?
Challenges include: (1) Accommodating financier's requirements and risks,
(2) application in countries with weak corporate governance, (3) apply in
countries where senior / influential individuals "do not want better control" for
selfish reasons, (4) complexity of globalisation and virtual work, (5) making
project governance simple and practical to apply, as well as (6) overcoming
stakeholder resistance to "another" form of statutory requirement.
Question 8 - How should role player liability towards eventual project
performance be incorporated in a global project governance model?
This question provided for the only real difference in opinion. Approximately
half of the respondents believed that stakeholder liabilities should be clearly
defined in as much detail as possible (as with board of directors in corporate
governance,) while the other school of thought argues any items or actions
that could create potential adversarial situations should be avoided and
handled outside the project context.
Question 9 - Please provide any other comments that you might have
regarding the development and implementation of a project governance
model.
The project governance model should be: (1) generic with the possibility of
incorporating project specific requirements, (2) very practical to use, (3) a
framework for decision-making, and (4) contain an element that promotes
self-governance. Project governance should reduce runaway project
spending, just as good corporate governance reduces uncontrolled losses.
2008
335
Project Governance for Capital Investments
Given the responses received, and further literature reviews, a concept
framework was developed to be used as a measurement and discussion base
against selected projects. The purpose of the framework content is to assess:
1. The relevance of each item in the framework to large capital projects.
2. To what extent the various items have been addressed on large capital
projects, formally or informally?
3. What the impact was of specific framework items on a studied project?
4. What the impact was of not addressing specific framework items on the
project outcome?
The concept framework is tabled below and will be used as a basis for
discussing project cases.
2008
336
Project Governance for Capital Investments
Project Governance Framework
P. Project Governance
A. Project Steering Committee
1. Composition
1. Core Competencies
•
Project finance
•
Project control management (Cost / Time)
•
Risk assessment and contingency management
•
Business / project alignment
•
Upfront management of the project and scope
robustness
•
Crises response (conflict management)
•
Industry knowledge
•
International experience
•
Leadership
•
Strategic alignment capability
•
Contract management capabilities
•
Stakeholder management
•
Political influence
•
Country and local knowledge
•
“Project Champion”
•
Local legal requirements
2. Steering Committee Size
Determined by project type, complexity and magnitude
Sub-committees - purchasing, finance, audit, social, etc.
reporting to steering committee.
3. Member Mix
Comprise members with direct interest, as well indirect
stakeholder representatives i.e. socio-economic and
environmental (establish appropriate forums to deal with
“other” stakeholders).
4. Chairperson Independent
The chairperson should be independent from any project
stakeholders (for public projects not private projects).
2. Responsibility
1. Committee Accountability
Project promotion and stakeholder enablement
Obtaining finance
Establishing levels of authority
Overall accountability
Bridging the gap between project and immediate external
and statutory environment
Team development
2. Charter
Development and adherence to project charter, including
project policy, CSR.
3. Internal Auditing
2008
1. Project Literacy
337
Project Governance for Capital Investments
The auditors should have extensive project experience on
all aspects of large capital projects.
3. Scope of the auditors to be vetted by the steering
committee.
B. Cost and Benefit Management (Project Finance and
Controls)
1. Charter
1. Project Governance Charter
Report on adherence to the charter and key performance
indicators.
2. Cost Reporting
Responsibility
1. Steering Committee
Establish reporting structure, priorities and format.
Report against approved budget.
3. Finance Reporting
1. Project Finance
For any financial activities outside the GAAP requirements,
full disclosure will be required.
2. Reports
Project financial status to be reported on a quarterly basis.
3. Corrections and Adjustments
To be reported quarterly.
4. Risk Management
1. Risk Management Process
Formal risk management processes should be in place.
2. Risk Management
The steering committee must actively ensure that proper risk
identification, quantification and mitigation planning is done
on the project, not only on financial and cost matters, but
covering all aspects of the project.
Impose risk management to be done by all stakeholders.
3. Risk Disclosure
Disclosures must be made about all the risks, and prioritised
on the project during the total project life-cycle.
4. Risk Certification
Requirement for monthly certification by the chairperson of
the steering committee of disclosure controls and
procedures.
C. Project Reviews and External Audits
1. Independence
1. Objectivity
Independence and objectivity of the project auditors and
reviewers must be ensured.
2. Scope
Project reviews and audits should not be confined to
adherence to in-house methodologies and practices, but
should include items that the review / audit deem necessary
to protect stakeholder interests.
2008
338
Project Governance for Capital Investments
3. Rotation
Auditors should have no direct or indirect interest in the
project or in the contractors / suppliers involved with the
project.
2. Attestation Report
1. Report
External auditor must issue an attestation report on the
project’s internal control report.
3. Disclosure
1. Non-audit services
As with corporate governance, it is required that separate
disclosures of the amounts paid to the external auditor for
non-audit services is made, together with a detailed
description of the nature of services.
2. Fees
Requires disclosure of fees paid to a company’s principal
external auditor since project commencement.
D. Ethical, responsible conduct and conflict of interest
1. Code
1. Standards
A Code of Ethics should be established and signed by each
member of the steering committee. The code should include
(as a minimum):
•
Environment
•
Social aspects
•
Socio-economical aspects
•
Conflict of interest guidelines
2. Adherence
Adherence to the code of ethics should be disclosed and
reported on a monthly basis.
3. Disclosure
Code should be made publicly available and any changes to
the code or waivers from the code must be disclosed
2. Compensation
1. Performance
Performance-related elements of compensation should
represent a substantial portion of the total compensation
package.
3. SHE
1. Adherence
SHE requirements must be set and formalised, taking into
consideration world best practices and host country
conditions and legislation.
4. Social
1. Adherence
Social and socio-economic considerations must be set and
formalised, taking into consideration world best practices
and host country conditions and legislation.
2008
339
Project Governance for Capital Investments
2008
340
Project Governance for Capital Investments
Appendix E
Secondary case studies: Case studies from general literature
(Addressing the second part of the case study research)
Note: The majority of the case studies in this appendix are summarised from
available case studies in general literature or sources directly from formal
documents. The sources are indicated per case study.
Each case study provides a short summary of the project, the criteria of
performance (failure or success) and observations of specific sections of the
CPGF that were well adhered to or not.
2008
341
Project Governance for Capital Investments
Case Study B.1: Danish Sports Facility
Source: United Nations (2005)
A local authority in Denmark, of around 20,000 inhabitants implemented a
new PPP financing system to increase funding availability for local projects.
The financing mechanism consisted of selling public assets, such as school
buildings, kindergartens and cleaning services, to private enterprises and then
renting them back with a provision that the municipality may buy them back
after a number of years. The scheme also included a project for the
construction of a sports arena, a soccer stadium as well as a nautical centre
under a contract lasting 20 years. The scheme was based on provisions of the
Danish tax system, which allowed the leasing company tax advantages that
were not available to the municipality. In 2000, a sale and leaseback
agreement was signed with a financial institution. The sale and leaseback
contract was not formally offered as part of a tender process.
At first sight, the impact of the project was positive. No Danish community
had been able, up until that time, to offer such high standards of service
through public funds. School children were provided with free personal
computers, pensioners were offered free trips and the new sports facilities
were of an international standard.
Following a newspaper investigation, however, it was alleged that companies
had given money to the soccer club in return for obtaining contracts from the
local authority. The mayor was a shareholder of the company and chairman
of the soccer club, which was to play in the new soccer stadium.
CPGF performance criteria: Failure
Project Governance adherence
Assessing the Danish Sports Facility case study against the criteria listed in
the CPGF, some areas were identified that violated the intent and
2008
342
Project Governance for Capital Investments
prescriptions of the CPGF. The areas listed were aligned with the lessons
learned listed in the original case study.
Concept Project Governance Framework
P. Project Governance
A. Project Steering Committee
1. Composition
Observations
1. Core Competencies
•
Contract management capabilities
EU’s procurement rules for tender and contracting
should be followed.
A formal tender process should be implemented. In
this case it was not, so potential conflicts of interest
were not identified.
2. Responsibility
1. Committee Accountability
Overall accountability
Bridging the gap between project and immediate external
and statutory environment.
Observations
Public accountability is critical for the success of
PPPs. The local council was not effective in
accounting for payments.
1. Code
D. Ethical, responsible conduct and conflict of interest
1. Standards
A code of ethics should be established and signed by each
member of the steering committee. The code should include
(as a minimum):
•
Environment
•
Social aspects
•
Socio-economic aspects
•
Conflict of interest guidelines
2. Adherence
Adherence to the code of ethics should be disclosed and
reported on a monthly basis.
3. Disclosure
Code should be made publicly available and any changes to
the code or waivers from the code must be disclosed
Observations
2008
All stakeholders in the PPP arrangement must be
transparent in their dealings with any aspect related to
the project.
343
Project Governance for Capital Investments
Case Study B.2: British Embassy in Berlin
Source: United Nations (2005)
Subsequent to the reunification of Germany, the German Government moved
from Bonn to Berlin and was later followed by the major embassies. The
British Government decided to return its embassy and chose its pre-war site
close to the Brandenburg Gate. The old building had been demolished in
1945 but the British Government retained ownership of the site.
The project was procured through the Private Finance Initiative (a PPP
approach that originated in the UK) and, after an EU tender bid, the Foreign
and Commonwealth Office (FCO) signed a contract with a German
consortium, which financed, constructed and would manage the building for
30 years.
The six-storey building provides 9,000m2 in total and houses
around 125 UK-based and locally engaged staff. Final adherence to the
design was not a requirement of the procurement process, but the rights
were assigned and decided in favour of the preferred bidder.
The FCO faced difficulties because they had to undertake a novel form of
procurement abroad. The noticeable feature of the project documentation is
that it was for the development of a facility outside the UK and
consequently issues regarding governing law and conflict in laws arise. It
was decided at an early stage that the project agreement would be an
English law contract.
In parallel with this, the underlying property interest was the grant by the
FCO of a German law-building lease. While the jurisdiction of the German
Courts in relation to the building lease could not be entirely excluded, both
the project agreement and building lease had been so structured as to place
virtually exclusive reliance on dispute resolution procedures, should
problems arise in the future.
The project was successfully completed and this shows that despite the
2008
344
Project Governance for Capital Investments
potential complexities, an effective structure was found by implementing
common law structures of designing, building, financing and operating of the
facility overseas.
CPGF performance criteria: Successful
Project Governance Adherence
1. Composition
Observations
2008
Concept Project Governance Framework
P. Project Governance
A. Project Steering Committee
1. Core Competencies
•
Contract management capabilities
Project agreements can cross borders. This one
was governed by English law but adapted to major
German law-related financial and tax issues.
Introduction
of
dispute
resolution
clause
mechanisms early in the project managed to reduce
the legal complexity of the project.
345
Project Governance for Capital Investments
Case Study B.3: The Mapeley PFI project: sale of land and building by
the Inland Revenue
Source: United Nations (2005)
“In March, 2001 the UK government’s tax authority (the Inland Revenue
and Custom Excise), in order to raise capital for the Exchequer, proposed a
PFI through transference of the ownership and management of buildings
belonging to the IRCE in a lease back for 20 years. For £220m, 600
buildings went to a consortium (Mapeley), which was chosen as the
preferred bidder. The Inland Revenue said at the time of the operation that
it was dealing with a UK registered company. However, 18 months later, a
review by the auditor’s office identified that the company was based offshore
in Bermuda. This therefore raised the possibility that ownership of valuable
assets was to be shifted beyond the reach of the UK tax authorities to a
company registered in a tax haven.
Some experts believe the sale will theoretically eventually cost the
government millions of pounds in lost revenues from capital gains tax,
although this is not easy to quantify because UK-based companies may
make arrangements that entitle them to tax relief. Information disclosed to
the UK Parliament and to the public by the government was not accurate or
was incomplete. The exact contract structure was revealed fairly late in the
procurement process and the press release incorrectly stated that the
contract was signed with a UK-based company.
A financial crisis affected
Mapeley UK, which then sought contract price increases soon after the
signing of the contract, demonstrating a poor due diligence and
accountability process during tender evaluation that should be improved.”
CPGF performance criteria: Failure
Project Governance Adherence
2008
346
Project Governance for Capital Investments
1. Composition
Observation
2. Financial
Disclosures
Concept Project Governance Framework
P. Project Governance
A. Project Steering Committee
1. Core Competencies
•
Project finance and cost management
•
Contract management capabilities
Government officials should be fully informed about
key circumstances relating to PPP contracts.
B. Cost and Benefit Management
1. Project Finance
For any financial activities outside the GAAP requirements,
full disclosure will be required.
2. Reports
Project’s financial status to be reported on a quarterly basis.
3. Corrections and Adjustments
To be reported quarterly.
3. Internal Controls
1. Risk Management Process
Formal risk management processes should be in place.
2. Risk Management
The steering committee must actively ensure that proper risk
identification, quantification and mitigation planning is done
on the project, not only on financial matters, but covering all
aspects of the project.
3. Risk Disclosure
Disclosures must be made about all the risks on the project
during the total project life-cycle.
4. Risk Certification
Requirement for monthly certification by the chairperson of
the steering committee of disclosure controls and
procedures.
Observations
Governments should take into account the reduced
tax income from companies registered in tax havens
when designing PPP contracts and procurement
processes. While the audit process worked as
intended, and identified this issue, it should have
been identified earlier, during tender evaluation.
Accurate evaluation of the financial capacity and
soundness of the bidder is a key aspect of tender
evaluation.
2008
347
Project Governance for Capital Investments
Case Study B.4: The Chesapeake Forest
Source: United Nations (2005), Smith, A.L. (2006)
Chesapeake Bay is the largest estuary in the United States. The surface
area of the Bay and its tidal tributaries is approximately 7,000 square miles,
and its watershed comprises 64,000 square miles in six states and the
District of Columbia. Historically, the Bay was one of the richest bio
habitats in North America; today, it still supports over 3,600 species of
plants and animals, and provides fishing, recreation, tourism and other
employment opportunities for the region.
Growing population pressure and loss of undeveloped land have reduced the
environmental quality of the Bay. Faced with declining water quality and
severe reductions of fish and shellfish populations, governments in the area
made restoration of the Chesapeake Bay an environmental priority.
Much of this land bordered on existing state–owned parkland and forest,
creating a unique opportunity to buffer a large area from deforestation and
development.
However,
the
state
faced
several
obstacles
to
this
environmentally desirable goal:
•
The state lacked funding to acquire the land,
•
The state lacked resources to manage the land after purchase (the state
estimated that four full-time foresters and associated support services
would be required)
•
Cessation of timber harvesting would cause unacceptable disruption of
the local economy in this largely rural part of the state
In 1999, a lumber company offered for sale a tract of 58,172 acres in the
Chesapeake Bay watershed, including shoreline property. The acquisition of
the land was achieved through fairly traditional means. The state purchased
one-half of the acreage using state funds, while the remaining 29,000 acres
were purchased by an environmental non-profit organisation, which
transferred ownership to the state. By December 2000, the state owned all of
2008
348
Project Governance for Capital Investments
the Chesapeake Forest lands.
The state, working with the non-profit environmental group, then sought to craft
a PPP, with the following explicit objectives:
•
Providing a steady flow of economic activity and employment to support
local businesses and communities;
•
Preventing the conversion of forested lands to non-forest uses;
•
Contributing to improvements in water quality, as part of the larger
Chesapeake Bay restoration effort;
•
Protecting and enhancing habitat for threatened and endangered species;
•
Maintaining soil and forest productivity and health; and
•
Protecting visual quality and sites of special ecological, cultural or
historical interest.
To achieve these objectives, the state advertised, negotiated and awarded a
multiyear contract to a lumber company. This innovative agreement allows the
company to harvest up to 1,000 acres of timber annually: an environmentally
sustainable level.
In return, the lumber firm is required to manage the
Chesapeake Forest to the state’s social and environmental standards.
Harvesting of timber is allowed only where it is consonant with the
environmental objectives of water quality and wildlife habitat.
The partners, state and timber company, share the profits generated from the
sale of timber, with a 15 percent share of sales revenues being directed to the
local county governments. To minimize risk to its private partner, the state
agreed to compensate the lumber company for any losses in the first two years.
However, this guarantee was never triggered, since the partnership has
generated a profit every year since its inception.
The lumber company is
required to keep a fully accessible and transparent accounting system, open to
the state’s review, and audited by an independent accounting firm.
CPGF performance criteria: Successful
Project Governance adherence
2008
349
Project Governance for Capital Investments
1. Composition
Observations
2. Financial
Disclosures
Concept Project Governance Framework
P. Project Governance
A. Project Steering Committee
1. Core Competencies
•
Leadership
•
Strategic alignment capability
•
Contract management capabilities
Win-win contractual agreements can be developed and
implemented between public and private enterprises.
B. Cost and Benefit Management
1. Project Finance
For any financial activities outside the GAAP requirements,
full disclosure will be required.
2. Reports
Project financial status to be reported on a quarterly basis.
3. Corrections and Adjustments
To be reported quarterly.
Observations
1. Code
Observations
2008
Innovative financing and transparent disclosure could
provide much needed capital for PPPs.
D. Ethical, responsible conduct and conflict of interest
1. Standards
A code of ethics should be established and signed by each
member of the steering committee. The code should include
(as a minimum):
•
Environment
•
Social aspects
•
Socio-economic aspects
•
Conflict of interest guidelines
Protecting the environment through an inclusive,
transparent and commercial basis provides a platform
for sustainability.
350
Project Governance for Capital Investments
Case Study B.5: The Zurich Soccer Stadium project
Source: United Nations (2005)
A project to build a new football stadium in Zurich was proposed, which
included a shopping centre alongside the stadium. The Green Party was,
however, opposed to the construction of the stadium on environmental
grounds. Local residents reacted against the project as well, because of
concerns over increased traffic congestion that would result from the
project. To solve the dispute, a referendum was called to approve both the
planning permission and the city decision to provide land and funding worth
a total of CHF 37.5m, which was 10% of the total project cost. In September
of the year 2003, the referendum results showed: 63,26% of the
inhabitants agreed to the private plan and 59,19% agreed with the financial
participation. Credit Suisse will finance the project with a loan of CHF
370m among a consortium of other private investors. The project involves
improvements in the public transportation network with a new tram and bus
line to deal with the increase in traffic.
CPGF performance criteria: Successful
Project Governance Adherence
Table 5.3: Concept Project Governance Framework (CPGF)
D. Ethical, responsible conduct and conflict of interest
3. Integrated
1. Adherence
sustainability
SHE requirements should be to international standards, as a
minimum, supplemented by host country requirements.
4. Social
Observations
2008
1. Adherence
Social and socio-economic considerations should be to
international standards, as a minimum, supplemented by host
country requirements.
•
Public scrutiny by a referendum before the final
approval of a project provides benefits. Participation
is positive as it generates better understanding by the
community through open debate.
•
Full consideration should be given to project-related
impacts, such as traffic congestion, noise pollution, etc.,
prior to project approval.
351
Project Governance for Capital Investments
Case Study B.6: D47 Motorway Project (Czech Republic)
Source: United Nations (2005), Bird Life International (2003), Halliburton (2002)
In 2001, a PPP project to improve the D47 motorway was initiated and
launched in the Czech Republic. The project was aimed at improving
the infrastructure requirements to meet EU standards and the expected
greater use of motorways. Estimated at US$ 1.5 billion, the 80km motorway
would form part of the Trans-European Network of motorways linking the
Baltic with the Balkans and would connect Ostrava on the Polish border with
the existing motorway network at Lipnik Nad Becvou. Financial close for the
project was scheduled for autumn 2002. It was intended to be the first
motorway project in the Czech Republic to be built using a payment
structure based on shadow tolls. In March 2001 Kellogg Brown & Root
(KBR), in consortium with others, signed a contract with the Czech
Government for a 30-year concession to design, build, finance and operate
the D47 motorway in the Czech Republic (Halliburton, 2002). The contract
stipulated several conditions regarding the final price, including risks
involved in the buy-out of property and receipt of land-use permits, which
would all be covered by the Czech government.
In April 2003, the
Czech government
decided to cancel
the contract due to
strong criticism of
the price, apparent
contract omissions
and the fact that a
significant
amount
of money could be
saved even though
a possible penalty
for early termination
2008
352
Project Governance for Capital Investments
might have to be forfeited. In addition, environmental groups, led by Bird Life
International (BLI) (2003), claimed that the construction would severely
damage the environment and urged that an alternative route be considered. In
short, BLI claimed that the site was an Important Bird Area (IBA) and formed
part of the proposed Special Protection Areas Hermansky stav-Struzka. Within
the site, the construction would affect important breeding sites of the
Corncrake, Spotted Crake, Marsh Harrier, Honey Buzzard, Kingfisher, as well
as wintering grounds of the Common Merganser (it is also the only regular
breeding site of this species in the Czech Republic), White- tailed Sea Eagle,
and many other species listed in Annex I of the Birds Directive. The planned
route also leads through important breeding grounds for the European Firebellied and Yellow- bellied Toads and an area important for the Hermit Beetle
and for the European Beaver (priority species of Annex II and Annex IV of the
Habitats Directive). In conclusion, the BLI proposed an alternative route that
seemed cheaper and more environmentally friendly.
A parliamentary commission was appointed to investigate the circumstances
of the award and subsequent termination of the contract. Compensation for
the constructing consortium was agreed in July 2003.
The project was restructured using traditional methods through open
tender processes for construction. Financing was provided via the State
Transport Infrastructure Fund as well as through bonds and loans.
CPGF performance criteria: Fail
Project Governance adherence
2008
353
Project Governance for Capital Investments
Concept Project Governance Framework (CPGF)
P. Project Governance
A. Project Steering Committee
1. Composition
1. Core Competencies
•
Project finance and cost management
•
Contract management capabilities
Observations
1. Code
Observations
2008
•
The contracting strategy should be carefully
selected upfront with a competitive tender process as
pre-requisite for any infrastructure related project.
•
An efficient and impartial dispute resolution
system should be considered in advance.
D. Ethical, responsible conduct and conflict of interest
1. Standards
A code of ethics should be established and signed by each
member of the steering committee. The code should include
(as a minimum):
•
Environment
Respected and reputable environmental groups should
be consulted.
354
Project Governance for Capital Investments
Case Study B.7: Tajikistan Pamir Private Power Project
Source: United Nations (2005), The World Bank Group (2007), Markandya, A. & Sharma, R.Y. (2004)
In Tajikistan, one of the poorest countries in the former USSR region, the IFC
and the Aga Khan Fund for Economic Development (AKFED), together with
the Tajikistan government, are working on the development of a new
electricity generation and distribution project in
Gorno-Badakhshan region
for 250,000 residents. A new company was established, 70% owned by
AKFED (a group of private, non-denominational development agencies)
and 30% by IFC. The project will cost US$ 26 million. In addition, the Swiss
government provided US$ 5 million to maintain the tariff increase required in
the early years in line with the national tariff and to support a minimum
consumption amount. The company will control and operate all existing
electricity generation, transmission and distribution facilities in GornoBadakhshan under a 25-year concession, complete with a partly constructed
hydroelectric plant but increasing its capacity from 14 MW to 28 MW. It will
also operate another 8 KW plant in the city of Khorog and construct a river
regulating structure at the upstream Yashikul Lake to ensure adequate flow
in winter, and rehabilitate other assets, including substation, transmission
and distribution lines.
2008
355
Project Governance for Capital Investments
CPGF performance criteria: Successful
Project Governance Adherence
Concept Project Governance Framework (CPGF)
P. Project Governance
A. Project Steering Committee
1. Composition
1. Core Competencies
• Project finance and cost management
Observations
1. Code
•
Innovation funding mechanisms can stimulate
development in poorer countries and provide a basis for
sustainable development.
D. Ethical, responsible conduct and conflict of interest
1. Standards
A code of ethics should be established and signed by each
member of the steering committee. The code should include
(as minimum):
• Socio-economic aspect
3. Integrated
sustainability
1. Adherence
SHE requirements should be to international standard, as a
minimum, supplemented by host country requirements.
Observations
•
•
2008
A concession can successfully grant a legal,
regulatory,
environmental
(including
deforestation and pollution), financial and
technical
framework
with
parliamentary
approval that reduces political risk of future
changes.
Political and social risk can be mitigated by a
social protection scheme tariff.
356
Project Governance for Capital Investments
Case Study B.8: Scottish Schools
Source: United Nations (2005), Caithness Community Website (2005), e-architect (2004)
In Scotland, a l a r g e p o r t i o n o f P P P f u n d i n g ( n e a r l y 5 0 % ) has
been directed towards schools. In 2001, school PPPs accounted for 10% of
all capital expenditure committed by the Scottish Executive. In March 2003 it
was announced that an additional £750m, over and above the already
committed £1.2bn, would be invested in the further rebuilding or refurbishing
of school buildings. The project intended to provide quality working
environments and access to world class information technology, enabling
pupils, each with their own e-mail address, and teachers to work together,
productively and efficiently, to raise standards and maximise the individual
potential of every participant.
However, in 2003, the strong incentives provided to private stakeholders were
questioned by the Caithness Community when complaints arose due to the
invasion of green spaces (parks and recreation areas) adjacent to schools. In
terms of the PPP agreements, the private stakeholders were given access to
some of these lands for private developments without proper consultation with
communities. Adding to this, many teachers started raising concerns in 2004
regarding the quality of the newly built and refurbished classrooms and the
seemingly less educational friendliness of the new facilities. A survey was
launched among Scottish teachers that indicated, amongst other issues, that:
•
Only 27% of teaching staff felt their comments had an impact on the
plans for the school
•
Only 30% of teaching staff believed that their new school represented
good value for money
•
Only 20% of teaching staff felt they had been properly consulted
regarding recreational facilities for pupils
•
Only 30% of teaching staff felt they had been given proper input on
resource areas such as libraries
•
Only 25% of teaching staff felt they had been properly consulted on
health and safety issues
2008
357
Project Governance for Capital Investments
CPGF performance criteria: Questionable
Project Governance Adherence
Concept Project Governance Framework (CPGF)
P. Project Governance
A. Project Steering Committee
1. Composition
1. Core Competencies
•
Project finance and cost management
•
Contract management capabilities
Observations
1. Code
PPPs within the school sector can improve educational
standards and give more value for money.
D. Ethical, responsible conduct and conflict of interest
1. Standards
A code of ethics should be established and signed by each
member of the steering committee. The code should include
(as a minimum):
•
Environment
•
Social aspects
•
Socio-economical aspects
•
Conflict of interest guidelines
Observations
The impact on the immediate communities and input
from direct stakeholders should be formalised before
major capital expenditure. The interest of the private
and public stakeholders should be carefully balanced.
3. Integrated
sustainability
1. Adherence
SHE requirements should be to international standard, as a
minimum, supplemented by host country requirements.
Observations
PPPs can have a substantial social impact. Schools
are set up in many of Glasgow’s so-called ‘deprived’
areas.
2008
358
Project Governance for Capital Investments
Case Study B.9: Bulgaria, Sofyiska Voda – Water Supply Programme
Sources: United Nations (2005), European Bank for Reconstruction and Development (EBRD) (2000)
Although Bulgaria has a well-developed water supply system servicing
99% of the population, the system itself has been badly maintained. It was
estimated that around 3% of the population connected to drinking water
supply systems uses water with dangerously high levels of nitrates, oil and
serious
microbiological
contamination.
Due
to
this
dilemma
i nfrastructure systems for water supply and wastewater treatment and
disposal are in the process of radical change in Bulgaria. The country’s water
strategy is focused on improving the quality and complying with EU
environmental standards.
A utilities company, Sofijska Voda, was formed, which is majority owned by
International Water UU (Sofia), and parent companies that include Bechtel
Enterprises Holdings Inc., Edison SpA and United Utilities plc. The company
has taken over operating responsibility for the water and wastewater
system for Sofia under a 25-year concession agreement. The municipality of
Sofia holds 25% of the shares. The EBRD’s finance of EUR31 million will
support Sofijska Voda’s capital expenditure programme for the first five
years of the concession, including start-up costs. The sponsor group will
provide combined subordinated debt and equity, which, together with funds
generated internally by the company, bring the total amount of the five-year
project to EUR94 million. The intention was that the initial investment would
concentrate on rehabilitation of the water and sewerage networks to reduce
leakage and infiltration. By 2002, the company had completed 71
rehabilitation projects on the water supply network and 15 projects on the
sewerage networks in the city, resulting in improved quality of service for
about 25,000 habitants.
Eventually, the residents of Sofia will benefit from the country’s first
privately managed water and wastewater company, servicing 1.3 million
people.
2008
This
initiative
had
a
strong
socio-economical
and
359
Project Governance for Capital Investments
environmental impact on the city, while the funds help the company
improve maintenance of the city’s water supply network (running to an
overall length of 3 500 km) as well as 1 700km of sewage network. Two
water
treatment
plants
were
also
included
in
the
company’s
operations, namely Bistritsa and Pancharevo.
CPGF performance criteria: Successful
Project Governance Adherence
Concept Project Governance Framework (CPGF)
P. Project Governance
A. Project Steering Committee
1. Composition
1. Core Competencies
•
Project finance and cost management
•
Contract management capabilities
Observations
Through a comprehensive PPP structure, which is
lenient towards private enterprise, successful and
sustainable entities can be established in the basic
utility supply industry.
2. Responsibility
1. Committee Accountability
Overall accountability
Bridging the gap between project and immediate external
and statutory environment.
Observation
Proper handover and acceptance of accountability can
establish successful PPP agreements.
1. Code
Observations
2008
D. Ethical, responsible conduct and conflict of interest
1. Standards
A code of ethics should be established and signed by each
member of the steering committee. The code should include
(as a minimum):
•
Environment
•
Social aspects
•
Socio-economical aspects
•
Conflict of interest guidelines
The project addressed all items in a sustainable
fashion.
360
Case Study B.10: Vancouver Landfill Cogeneration Plant
Source: United Nations (2005), Environment Canada (2007)
The City of Vancouver, British Columbia, owns and operates one of the
largest landfill sites in Canada. The site serves approximately 900,000
residents and receives approximately 400,000 tonnes of solid waste
annually. The site produces landfill gases as a by-product of waste
decomposition, including methane - a greenhouse gas that contributes to
global climate change.
Due to the increase in landfill congestion, spreading of odours and increased
environmental impact, the c ity began collecting and burning (flaring) the
gases i n 1 9 9 1 . This burning created significant heat energy and started
threatening compliance with the Kyoto Protocol.
Needing to address the potential increase in negative environmental impact,
the city decided to investigate the potential use of the landfill gas (LFG) for
cogeneration. Through a competitive bidding process, Maxim Power was
selected to finance, design, build, own and operate an LFG beneficial use
facility. Following a detailed and structured proposal evaluation and
negotiation process, a 20-year PPP contract was approved by the city
council in February 2002. A formal PPP structure was developed, under
which the LFG would be used to provide electricity to between 4 000 and 5
000 homes. Waste heat from the power generation process is recovered as
hot water and sold to a nearby greenhouse complex for heating purposes.
Using, rather than burning the LFG resulted in a net effect of 6 000 less
vehicle emissions in Canada.
The City of Vancouver only guarantees the provision of LFG and makes no
further payments to Maxim Power. In addition, the city receives ten percent of
gross revenues from the sale of both the electricity and thermal energy
generated by the cogeneration plant, amounting to approximately US$ 400
000 annually. The cost to the city for collecting the LFG amounts to
Project Governance for Capital Investments
approximately US$ 250 000 per year.
The total capital cost of the project, including the advanced control system
upgrade, amounted to US$ 10 million.
CPGF performance criteria: Successful
Project Governance Adherence
Concept Project Governance Framework (CPGF)
P. Project Governance
A. Project Steering Committee
1. Composition
1. Core Competencies
•
Project finance and cost management
•
Business / project alignment
•
Leadership
•
Strategic alignment capability
•
Contract management capabilities
Observations
2. Financial
Disclosures
2008
The example of the Vancouver Landfill site (although
not large in capital value) is a good indication of the
successes that can be achieved with good strategic
alignment, focusing on core competencies and well
negotiated contracts and the benefits of working
towards a win-win situation in PPPs.
B. Cost and Benefit Management
1. Project Finance
For any financial activities outside the GAAP requirements,
full disclosure will be required.
362
Project Governance for Capital Investments
2. Reports
Project financial status to be reported on a quarterly basis.
Observations
1. Code
The cost and economic situation of the LFG operation is
well documented and reported on.
D. Ethical, responsible conduct and conflict of interest
1. Standards
A code of ethics should be established and signed by each
member of the steering committee. The code should include
(as a minimum):
•
Environment
2. Adherence
Adherence to the code of ethics should be disclosed and
reported on a monthly basis.
Observations
2008
The primary drive for this project was environmental
considerations and adherence to the Kyoto Protocol.
The eventual environmental effect is well documented
and published.
363
Project Governance for Capital Investments
Case Study B.11: Channel Energy Poti Port Project, Georgia
Source: United Nations (2003), European Bank for Reconstruction and Development (2002)
Since the mid 1990s, cargo traffic flow has increased dramatically from
Europe through the historic Black Sea ports of Odessa, Varna and
Constantza. Especially the facilities at Port of Poti started experiencing
major overload. The Port of Poti was established in 1858 and is
strategically located as a gate to the Caucasus and Central Asian
economies. It is the shortest route connecting Europe with Central Asia and
further expansion of the Euro-Asian Transport Corridor known as
TRACECA (the new ‘Silk Road’), were bound to further increase cargo
transportation by sea via the Port of Poti.
To address this need for expansion, a company (Channel Energy (Poti)
Ltd.) was set up as a joint venture between an energy firm and Poti Sea
Port (Georgia) under the sponsorship of a holding group. The - project was
funded through EBRD as well as Black Sea Trade and Development Bank
(BSTDB) to cover the initial capital layout of US$ 30 million.
Apart from alleviating the immediate cargo congestion at the port, the project
also formed part of the longer term capital programme for the development
of l a r g e - s c a l e refinery projects in the Caspian region, as well as ferry
landing facilities and an oil seed plant. The overall project objectives
included:
•
enhancing the service standards in the region through privatisation,
•
promoting greater competition in the private sector; and
•
developing an environmental safety strategy.
Environmental compliance proved to be a major challenge, especially
regarding potential oil spillages outside the port and the future of the Kolkheti
nature reserve. An Environmental Impact Assessment (EIA) was conducted,
resulting in the following proactive and immediate actions:
•
2008
Additional technical parameters on the effluent treatment plant had to
364
Project Governance for Capital Investments
be presented for approval.
•
A detailed oil spills response plan had to be developed and
coordinated prior to commissioning of the terminal.
•
A self-monitoring programme had to be developed and agreed, and
•
The neighbouring countries had to be informed about the project and its
potentially adverse trans-boundary impacts under adverse scenarios.
Over and above the above actions, Georgia also developed its National Oil
Spill Contingency plan that was aimed at achieving safe and environmentally
responsible passage through the Strait.
CPGF performance criteria: Successful
Project Governance Adherence
Concept Project Governance Framework (CPGF)
P. Project Governance
A. Project Steering Committee
1. Composition
1. Core Competencies
•
Strategic alignment capability
•
Contract management capabilities
Observations
1. Code
Observations
2008
Although not much information is available regarding the
detail contractual arrangements or financial sustainability
of the project, the involvement of EBRD provides a clear
indication of the strategic forward thinking of the leaders
in the region. The upgrading of the port should not be
viewed in isolation, but should be seen as part of the total
investment for the economic revitalisation of the area.
D. Ethical, responsible conduct and conflict of interest
1. Standards
A code of ethics should be established and signed by each
member of the steering committee. The code should include
(as a minimum):
•
Environment
Much effort went into establishing a well recognised
environmental protection plan.
365
Project Governance for Capital Investments
Case Study B.12: New Multi-purpose Terminal in the Baltic Sea Port of
Ventspils, Latvia
Source: United Nations (2005), European Bank for Reconstruction and Development (1999), Noord Natie
Ventspils Terminals website (2007)
Noord Natie Ventspils Terminals LLC (NNVT) is a joint venture that was
established between Noord Natie nv and Ventplac LLC to address the
demand for general cargo traffic in the Baltic Sea and to promote the Port of
Ventspils (the fifteenth largest port in Europe) as a gateway to Russia. Noord
Natie nv (a Belgium-based company established in 1882) is a respected ports
operating company and brought its substantial international experience in port
operations, particularly in the management of high-quality container terminals,
to the development of the multi-purpose terminal.
With the aim of stimulating private enterprise in Latvia, a PPP arrangement
was formalised with loans secured from European Investment Bank (EIB)
and the EBRD. The initial funding was sourced to bring the country’s railway
infrastructure into line with the needs of a modern high-volume transit route
and to upgrade the rail network at Latvia’s main port. The upgrade was
also aimed at rerouting the transport of hazardous chemicals, in
line with European environmental standards.
2008
366
Project Governance for Capital Investments
The total cost of the investment is about EUR 69.0 million with public
financing exceeding EUR 29.5 million. NNVT received a EUR 19.5 million
loan from the EBRD, to be used as a private contribution to the PPP, and in
particular to finance the purchase and installation of cargo handling
equipment and other superstructure for the multi-purpose inter-modal
terminal.
A comprehensive EAP was developed, in line with national and EU / World
Bank environmental and health and safety standards.
CPGF performance criteria: Successful
Project Governance Adherence
Concept Project Governance Framework (CPGF)
P. Project Governance
A. Project Steering Committee
1. Composition
1. Core Competencies
•
Project finance and cost management
•
Business / project alignment
•
Leadership
•
Strategic alignment capability
•
Contract management capabilities
Observations
1. Code
Observations
2008
Realising the strategic positioning and geographical
location of the port, pro-active leadership and
innovative financing secured a successful project. The
role of strong leadership from all participating
stakeholders should be mentioned, with NNVT a
strength in the European ports industry today.
D. Ethical, responsible conduct and conflict of interest
1. Standards
A code of ethics should be established and signed by each
member of the steering committee. The code should include
(as a minimum):
•
Environment
•
Social aspects
•
Socio-economical aspects
•
Conflict of interest guidelines
Uncompromising environmental impact assessments
were conducted to ensure a safe and healthy working
environment.
367
Project Governance for Capital Investments
Case Study B.13: Three Gorges Dam
Source: Wikipedia (2007), Ryder, (2007)
The largest dam on earth, The Three Gorges Dam in the Yangste River, is
nearing completion, with the final handover date being 2009. As of 2007, it is
the largest hydroelectric river dam in the world - more than five times the size
of the Hoover Dam.
Initiated in 1919 by Sun Yat-sen in his address, 'The International
Development of China', several Chinese leaders were tempted to start
constructing the dam, but, with limited ability, they started the Gezhouba Dam
first. In April 1992 the final approval was obtained from the National People's
Congress and construction began in 1994. Structural work was finished on 20
May 2006, nine months ahead of schedule.
The reservoir began filling on 1 June 2003 and will occupy part of the scenic
Three Gorges area between the cities of Yichang, Hubei, and Fuling,
Chongqing. The dam will be fully operational in 2009 when the final set of
hydroelectric generators has been commissioned.
Since its initiation, the project has been plagued with controversy. As with
many LCPs, there is a continuous debate over the costs and benefits of the
Three Gorges Dam. Although there are economic benefits from flood control
and hydroelectric power, there are also concerns about the future of 1.13
million people who will be displaced by the rising waters, the loss of many
valuable archaeological and cultural sites, as well as the potential devastating
effects on the environment. During mid-2007, the Chinese national auditor
also reported the following items (Ryder, 2007):
•
“Almost half the project’s 1448 construction supervisors were either
unlicensed or unqualified for the job,
•
Several engineering companies subcontracted projects worth US$ 108
million to other construction units and charged management fees of US$
7 million, in violation of project regulations. The auditors cite one
example: for constructing the shiplock, the Three Gorges Corporation,
2008
368
Project Governance for Capital Investments
signed a US$ 85 million contract with the Yichang Anlian Hydropower
Company, which then subcontracted another 18 companies to do the job
and charged a management fee of US$ 5 million,
•
All but one of 347 supervision contracts checked was awarded to the
Three Gorges Corporation’s subsidiary, Three Gorges Development
Company, without public bidding. About half were carried out without a
signed contract.
•
The auditors could find no written records for 22 of the 37 construction
‘flaws and incidents’ reported by the State Council’s quality inspection
group, which include cracks in the dam structure and problems with the
turbines.”
Other problems discovered by the auditors include:
•
“Improper contract management that increased project costs by US$ 61
million.
•
About US$ 5 million was spent on equipment and materials that has
never been used.
•
The Three Gorges Corporation illegally acquired about 20 hectares of
land at the dam site and then built a four star hotel and a theme park
(that charges admission).”
CPGF performance criteria: Questionable
Project Governance Adherence
Concept Project Governance Framework (CPGF)
P. Project Governance
A. Project Steering Committee
1. Composition
1. Core Competencies
•
Project finance and cost management
•
Business / project alignment
•
Front-end-Loading management
•
Crises response
•
Industry knowledge
•
International experience
•
Leadership
•
Strategic alignment capability
•
Contract management capabilities
Observations
2008
To provide an independent view on the status of the
competencies of the key steering committee members
369
Project Governance for Capital Investments
would not be possible at this stage. Although the
overall financial management seems to be under
control, the allocations and administration of contracts
seems questionable from the audit reports.
1. Financial Reporting
Responsibility
Observations
2. Financial
Disclosures
B. Cost and Benefit Management
1. Steering Committee
Report against approved budget.
From general information available, it seems as if
financial reports are submitted regularly on the project.
2. Reports
Project financial status to be reported on a quarterly basis.
3. Corrections and Adjustments
To be reported quarterly.
Observations
1. Independence
Financial reporting done well.
C. Project Reviews and Audits
1. Objectivity
Independence and objectivity of the project auditors and
reviewers must be ensured.
2. Scope
Project reviews and audits should not be confined to
adherence to in-house methodologies and practices, but
should include items that the review / audit deem necessary
to protect stakeholder interests.
Observations
1. Code
Regular project audits being done and published.
D. Ethical, responsible conduct and conflict of interest
1. Standards
A code of ethics should be established and signed by each
member of the steering committee. The code should include
(as a minimum):
•
Environment
•
Social aspects
•
Socio-economical aspects
•
Conflict of interest guidelines
2. Adherence
Adherence to the code of ethics should be disclosed and
reported on a monthly basis.
3. Disclosure
Code should be made publicly available and any changes
to the code or waivers from the code must be disclosed.
3. Integrated
sustainability
1. Adherence
SHE requirements should be to international standards, as a
minimum, supplemented by host country requirements.
4. Social
1. Adherence
Social and socio-economic considerations should be to
2008
370
Project Governance for Capital Investments
international standards as a minimum, supplemented by
host country requirements.
Observations
2008
Section D of the CPGF remains contentious for this
project. In general, dissatisfaction remains with the way
that public participation was handled during the
assessment studies on the socio-economic and
environmental impacts.
371
Project Governance for Capital Investments
Case Study B.14: Ecuador Oil Production
Source: Boyle & Anderson (1996)
The economic development of Ecuador is largely dependant on the
exploration of its natural resources. Such a resource is the rich oil fields in the
rain forests of the Amazon. Since its election in 1992, the conservative
government has intensified oil production and by 1996 had secured loans of
more than USD$ 400 million from the World Bank on condition that the
government complies with their environmental standards. However, the
development of the oil resources had a major impact on the indigenous tribes
and people living in the Amazon forests, especially the Huaorani, who are
most vulnerable to development, mainly due to their dispersed population
(approximately 1200 people living in 17 different communities). In 1990 the
Huaorani tribe established their own organisation, called ONHAE, to defend
their interests. In 1993 ONHAE accepted offers from Maxus Energy
Corporation to exploit the Huaorani territory for oil. However, it is believed that
the agreements did not carry the general consent of the Huaorani people,
since studies have shown form previous projects that the development had a
devastating impact on the communities, ranging from increase in alcohol
abuse to prostitution, illness, natural resource pollution, etc. It also surfaced
that the Tagaeri, a grouping within the Huaorani, who had most objected to
the oil developments, was actively pursued and killed to eliminate their
opposition to the oil projects.
CPGF performance criteria: Questionable
Project Governance Adherence
1. Code
2008
Concept Project Governance Framework (CPGF)
P. Project Governance
A. Project Steering Committee
D. Ethical, responsible conduct and conflict of interest
1. Standards
A code of ethics should be established and signed by each
member of the steering committee. The code should include
(as a minimum):
•
Environment
•
Social aspects
372
Project Governance for Capital Investments
•
•
Socio-economic aspects
Conflict of interest guidelines
2. Adherence
Adherence to the code of ethics should be disclosed and
reported on a monthly basis.
3. Disclosure
Code should be made publicly available and any changes
to the code or waivers from the code must be disclosed
3. Integrated
sustainability
1. Adherence
SHE requirements should be to international standards, as a
minimum, supplemented by host country requirements.
4. Social
1. Adherence
Social and socio-economic considerations should be to
international standards, as a minimum, supplemented by
host country requirements.
Observations
Although limited information is available regarding
specific oil projects, the whole program of oil field
development in Ecuador is clouded in severe human
rights and environmental violations. Acknowledging
that the area is difficult to work in, the proper
community education and development should form
part of the sustainability and socio-economic
development of the region.
2008
373
Project Governance for Capital Investments
Case Study B.15: Ok Tedi Mine – Papua New Guinea
Sources: Zillman et al. (2002)
The Ok Tedi copper mine lies in the south western area of Papua New Guinea
(PNG). South of the mine lies the Lower Ok Tedi area, populated by
approximately 3 000 people. The Oki Tedi River runs from the northern part
towards the south, with about 40 000 people occupying the banks of the river.
The mines started operating in 1981, when Broken Hills Properties Co. Ltd.
(BHP) from Australia, and Ok Tedi Mining Limited (OTML) obtained a mining
licence from the PNG government. According to the agreement, BHP/OTML
were not to discharge tailings and wastes into the river and the development
of waste disposal facilities commenced after the approval of USD$ 65 million
by the corporate board.
With the waste-disposal facilities well into the development phase, heavy
rainfall and land tremors (quite common in the area) resulted in a major
landslide that swept down the side of the mountain. A total of 60 million
tonnes of overburden and tailings discharged into the river. The environmental
pollution smothered vegetation along the river banks, impacted fisheries and
caused major skin diseases to those using the river for washing. The
inhabitants along the river (plaintiffs) launched a legal claim of USD$ 2.84
billion against BHP/OTML over alleged environmental pollution. The court
proceedings commenced in the Supreme Court of Victoria, where the
defendant denied any wrongdoing, claiming that all activities were conducted
under the license promulgated by the PNG government. Of major concern
(and strengthening the case for a global standard for project governance) was
the defendant’s reasoning that the actions of BHP/OTML were sanctioned
under PNG laws. Obviously, as a developing country with hardly any industrial
development, no laws requiring environmental assessment and social impact
considerations exist.
2008
374
Project Governance for Capital Investments
Eventually the case was settled outside of the court, whereby BHP/OTML had
to (among other agreements) compensate the affected parties financially to
the amount of USD$ 150 million and cover the plaintiffs’ legal costs.
Although the case was never fully tested in court, the case clearly highlighted
the need for some form of internationally agreed upon guideline, or even
legislation, for handling environmental, socio and socio-economic studies.
CPGF performance criteria: Failure
Project Governance Adherence
Concept Project Governance Framework (CPGF)
1. Composition
P. Project Governance
A. Project Steering Committee
1. Core Competencies
•
Crisis response
•
Front-end-Loading management
•
Leadership
2. Responsibility
1. Committee Accountability
Overall accountability
Bridging the gap between project and immediate external
and statutory environment.
Observations
The project was overshadowed by the environmental
disaster: the type of crisis response and leadership will
always be judged by the way the situation was handled. The
defendant’s claim of innocence in a situation like this can
potentially convey the wrong message, but the satisfactory
settlement was a good recovery. A major criticism is the lack
of upfront planning (front-end loading) that could have
prevented the disaster.
1. Code
D. Ethical, responsible conduct and conflict of interest
1. Standards
A code of ethics should be established and signed by each
member of the steering committee. The code should include
(as a minimum):
•
Environment
•
Social aspects
•
Socio-economical aspects
•
Conflict of interest guidelines
2. Adherence
Adherence to the code of ethics should be disclosed and
reported on a monthly basis.
2008
375
Project Governance for Capital Investments
3. Disclosure
Code should be made publicly available and any changes to
the code or waivers from the code must be disclosed.
Observations
2008
The project could be considered a landmark case in the
formalisation of environmental requirements for large
projects.
376
Project Governance for Capital Investments
References
ABEDNEGO, P.M. and OGUNLANA, S. O. 2006. Good project governance
for proper risk allocation in public-private partnerships in Indonesia.
International Journal of Project Management, 2006, Vol. 24, pp 622634.
ARBANI,
F.
2006.
Case
Studies
in
Project
Management,
http://www.pmi.org/Search/AdvancedResults.aspx?k=case%20studies
&s=Everywhere. Accessed 31 July 2007.
ARMSTRONG, P. 2005. Report on the Governance Structures for the Lesotho
Highlands Water Project. Edward Nathan Corporate Law Advisors, May
2005.
Asian Development Bank. 2001. Saving Asia’s Environment 2001. The Asian
Development Bank Review, December 2001 Issue.
Association for Project Management (APM). 2004. Directing Change: A Guide
to Governance of Project Management. www.apm.org.uk.
Association for Project Management (APM). 2005. A guide to governance of
project management., www.apm.org.uk. Audit Committees. Combined
Code Guidance, A report and proposed guidance by an FRC appointed
group chaired by Sir Robert Smith. January 2003.
ATKINSON, R.A. 1999, Project management: cost, time and quality, two best
guesses and a phenomenon, its time to accept other success criteria,
International Journal of Project Management, Vol. 17, No. 6, pp.337342.
BASKIN, J.B. and MIRANTI, P.J. 1997, from Micklethwait and Wooldridge,
2003. A History of Corporate Finance. Cambridge: Cambridge
University Press.
BELASSI, W. and TUKEL, O.I. 1996. A new framework for determining critical
success/failure factors in projects, International Journal of Project
Management, 1996, Vol.14, No. 3, pp 141-151.
BERLE, A.A. and MEANS, G.C. 1968. The Modern Corporation and Private
Property, Revised Edition, New York: Harcourt, Brace & World Inc.
2008
377
Project Governance for Capital Investments
from MICKLETHWAIT, J. & WOOLDRIDGE. A., 2003. The Company:
A Short History of a Revolutionary Idea London, UK: Weidenfeld &
Nicholson.
Bird Life International. 2003. Conflict areas between the TENs and nature
conservation,http://www.birdlife.org/action/change/europe/tent_case_st
udies.pdf. Accessed 26 July 2007.
BLACK, K. 1996. Causes of Project Failure: A survey of professional
engineers, PM Network, November 1996, pp 21-24.
BLOXHAM, E. 2002, Value-led organisations. Capstone Publishing: Oxford.
BOYLE, A.E. and ANDERSON, M.R. 1996. Human Rights Approaches to
Environmental Protection. Clarendon Press: Oxford.
BROMLEY, D. B. 1986. The Case-study Method in Psychology and Related
Disciplines. New York: John Wiley & Sons.
BRYMAN, A. 1988. Quantity and Quality in Social Research. London: Unwin
Hyman.
BRYSON, J.M. and BROMILEY, P. 1990. The Art of Continuous Change:
Launching Complements Theory and Term-paced Evolution in a
Relentlessly Shuffling Organisation, Administration Science Quarterly,
Vol. 42, pp 1-34.
BUCKLEY, C. 1995. Delphi: a methodology for preferences more than
predictions, Library Management, Vol. 16, No. 7, pp 16-19. ?
BURKE, R. 1999. Project Management – Planning & Control Techniques, 3rd
ed. Startford Upon Avon: Promatec International.
CADBURY, A. 1992. Report of the Committee on the Financial Aspects of
Corporate Governance. Gee & Co. Ltd, London.
Caithness Community Website. 2005. Are you aware of the PPP issues?,
http:/www.caithness.org, 23 October 2005. Accessed on 27 July 2007.
Cambridge International Dictionary of English. 1995. Cambridge University
Press.
CANTRILL, J.A., SIBBALD, B. and BUETOW, S. 1996. The Delphi and
nominal group techniques in health services research, International
Journal of Pharmacy Practice, Vol. 4, No. 2, pp. 67-74.
CAVALLI-SFORZA, V. and ORTOLANO, L. 1984. Delphi forecasts of landuse
2008
–
transportation
interactions,
Journal
of
Transportation
378
Project Governance for Capital Investments
Engineering, Vol. 110, No. 3, pp. 324-39, from MULLEN, P., 2003,
Delphi: Myths and Reality, Journal of Health Organisation and
Management, Vol.17, No.1, pp. 37-52.
CHANDLER, A.D. and SALISBURY, S. 1965. The Railroads: Innovators in
Modern Business Administration, in Mazlish, B., ed. The Railroad and
the Space Program: An Exploration of Historical Analogy, pp 127 162,
Cambridge: MIT Press, from MILLER, R. & LESSARD, D., eds. 2000.
The Strategic Management of Large Engineering Projects: Shaping
Institutions, Risks and Governance. Massachusetts: Massachusetts
Institute of Technology.
CLELAND, D.I. 1986. Measuring Success: The Owner’s Viewpoint,
Proceedings of the 18th Annual Seminar/Symposium, Montreal,
Canada, Project Management Institute, pp 6-12.
CRAWFORD, L. and POLLACK, J. 2007. How generic are project
management knowledge and practice? Project Management Journal,
Vol 38, No 1, pp 87-96.
CRITCHER, C. and GALDSTONE, B. 1998. Utilising the Delphi technique in
policy discussion: a case study of a privatised utility in Britain, Public
Administration, Vol. 76, No. 3, pp 431-50.
CRUVER, B. 2003. Enron: Anatomy of Greed. Reading, Berkshire: Arrow
Books, Cox & Wyman Ltd.
CYERT, R.M. and MARCH, J.G. 1963. A Behavioural Theory of the Firm,
Englewood Cliffs, NJ: Prentice Hall.
DALKEY, N.C. 1967. Delphi, Rand Corporation.
DALKEY, N. and HELMER, O. 1963. An experimental application of the
Delphi method to the use of experts, Management Science, Vol. 9, pp.
458-67.
DELBECQ, A.L., VAN DE VEN, A.H. and GUSTAFSON, D.H. 1975. Group
Techniques for Program Planning: a guide to nominal group and Delphi
processes. USA; Scott, Foresman and Company.
DEVAPRIYA, K.A.K. 2006. Governance issues in financing of public-private
partnership
organisations
in
network
infrastructure
industries,
International Journal of Project Management, Vol 24, pp 557 – 565.
2008
379
Project Governance for Capital Investments
DICKSON, P.G.M. 1993. The Financial Revolution in England: A Study in the
Development of Public Credit in England 1688 – 1756, Aldershot,
Hampshire, U.K.: Gregg Revivals, from MICKLETHWAIT, J. &
WOOLDRIDGE, A. 2003. The Company: A Short History of a
Revolutionary Idea. London, UK: Weidenfeld & Nicholson.
DOSI, G. 1982. Technology Paradigms and Technological Trajectories: A
Suggested Interpretation of the Determinants and Directions of
Technical Change, Research Policy, vol. 11, no. 3, pp 147 – 192.
DRORI, G.S., MEYER, J.W. and HWANG, H. 2006, Globalization and
Organization, New York: Oxford Press
DUNLOP, A. 1998. Corporate Governance and Control, London: The
Chartered Institute of Management Accountants
DVIR, D. and SHENHAR, A.I. 1992. Measuring the success of technologybased strategy business units, Engineering Management Journal, 1992
vol. 4, no 4, pp 33-38.
e-architect. 2004. Lack of consultation with teachers leads to concern over
quality of school rebuilds. http:/www.e-architect.co.uk, May 2004.
Accessed on 27 July 2007.
EASTERLY, W. 2001. The Elusive Quest fro Growth: Economist’s Adventures
and Mis-adventures in the Tropics. Cambridge: MIT Press.
ECKSTEIN, H. 1975. Case study and theory in political science. In
Greenstein, F.I. & Polsby, N.W. (Eds.). Handbook of Political Science,
Volume 7: Strategies of Enquiry.
EDWARDS, D.J.A. 1989. How clinical theory and practice are actually
developed – Case study method in cognitive behaviour therapy,
Knowledge and Method: On the Philosophy and Methodology of the
Human Sciences. Pretoria: Human Resources Research Council.
EISENHARDT, K.M. 1989. Building Theories form Case Research, Academy
of Management Review, Vol. 14, No. 4, pp 532 – 550.
EKSTEDT, E., LUNDIN, R.A., SÖDERHOLM, A. and WIRDENIUS, H. 1999.
Neo-Industrial Organising: Renewal by action and knowledge formation
in a project-intensive economy, London: Routlegde
EKSTEDT, E., LUNDIN, R.A., SÖDERHOLM, A. and WIRDENIUS, H. 1993.
Project organization in the squeeze between short-run flexibility and
2008
380
Project Governance for Capital Investments
long-run inertia, PMI’93 Seminar/Symposium, Smooth Sailing with
Project Management. San Diego, CA: Project Management Institute.
EKSTEDT, E., LUNDIN, R.A., SÖDERHOLM, A. and WIRDENIUS, H. 1999.
Neo-Industrial Organising: Renewal by action and knowledge formation
in a project-intensive economy. London: Routledge.
EL-MARASHLY, A.F. 1990. Project Management as perceived from ancient
Egyptian projects. in Dimensions of Project Management. Edited by
Reschke, H. and Schelle, H. Munich: Springer-Verlag, pp 275-289.
EMORY, C.W. 1985. Business Research Methods, 3rd Ed. Homewood,
Illinois: Irvin.
Engineering News. 2006. German firm blacklisted by World Bank in light of
Lesotho corruption, Issue 2006/11/06.
Environment Canada, 2007, Waste Management – Vancouver Project.
http://www.ec.gc.ca/wmd-dgd/default.asp?lang=En&n=FA04A146-1.
Accessed on 29 July 2007.
ESTY, B.C. 2004. Modern Project Finance – A Casebook, Boston: John Wiley
& Sons.
European Bank for Reconstruction and Development (EBRD). 1999. Ventspils
Port
Multi-Purpose/Intermodal
Terminal
–
Latvia,
http://www.ebrd.com/projects/psd/psd1999/5920.htm. Accessed on 29
July 2007.
European Bank for Reconstruction and Development (EBRD). 2000. EBRD
promotes improved water, waste-water services in Sofia, Press
Release,
15
December
2000.
http://www.ebrd.com/new/pressrel/2000/112dec15x.htm. Accessed on
27 July 2007.
European Bank for Reconstruction and Development (EBRD). 2002. JSC
Channel
Energy
Poti
Port.
http://www.ebrd.com/projects/psd/psd2000/11846.htm. Accessed on 29
July 2007.
FERGUSON, N. 2001. The Cash Nexus: Money and Power in the Modern
World 1700 – 2000. London: Allen Lane.
2008
381
Project Governance for Capital Investments
FISHER, K., JUNGBECKER, A. and ALFEN, H.W. 2006. The emergence of
PPP task Forces and their influence on project delivery in Germany,
International Journal of Project Management, Vol 24, pp 539 – 547
FLYVBJERG, B. 2005. Design by Deception, Harvard Design Magazine,
Spring / Summer 2005
FLYVBJERG, B. 2006. Five Misunderstandings About Case-Study Research,
Qualitative Inquiry, Vol. 12, No. 2, pp 219 – 245.
FLYVBJERG, B., BRUZELIUS, N. and ROTHENGATTER, W. 2003.
Megaprojects and Risk: An Anatomy of Ambition. Cambridge:
Cambridge University Press.
FORSBERG, K., MOOZ, H. and COTTERMAN, H. 2000. Visualizing Project
Management. 2nd ed. New York: John Wiley & Sons Inc.
FRAME, J.D. 1999. Course notes: Pre-conference Workshop, PMISA,
Johannesburg, South Africa.
FRAME, J.D. 1999. Project’99 – Pre-Forum Workshop, IIR Training,
Johannesburg.
Friends of the Earth International. 2001. Towards binding corporate
accountability.
http://www.foei.org/publications/corporates/accountability.html.
Accessed on 22 April 2007.
FUNDAHL, J.W. 1987. The history of modern project management, Project
Management Journal, Vol.28, No.2, pp. 33-36.
GIDDENS, A. 1984. The Constitution of Society: Outline of the Theory of
Structuration. Berkeley: University of California Press.
GILLIBRAND, M. 2004. New frontiers for corporate governance in 2004 and
beyond, Corporate Governance Journal, Vol. 4, No. 1, pp. 4-21.
GIOIA, J. 1996. Twelve reasons why programs fail, PM Network, November
1996, pp 16-19.
GITMAN, L.J. 2003. Principles of Managerial Finance. 10th Edition. Boston:
Addison Wesley.
GLASER, B. And STRAUSS, A. 1967, The Discovery of Grounded Research,
New York: Aldine, Hawthorne.
GOODMAN, C.M. 1987. The Delphi technique: a critique, Journal of
Advanced Nursing, Vol.12, pp. 17-31, from MULLEN, P., 2003, Delphi:
2008
382
Project Governance for Capital Investments
Myths and Reality, Journal of Health Organisation and Management,
Vol.17, No.1, pp. 37-52.
GOODMAN, R.A. 1981. Temporary Systems. Professional Development,
Manpower Utilisation, Task Effectiveness, and Innovation. New York;
Praeger.
GRAY, C.G. and LARSON, E.W. 2000. Project Management – The
Managerial Approach. Irwin: McGraw-Hill.
Halliburton, . 2002. KBR signs contract for the Czech Republic’s D47
Motorway. Press Release, 04 July 2004.
HANDLIN, O. and HANDLIN, M. 1953. From Micklethwait and Wooldridge,
2003, “Origins of the American Business Corporation”, Lane, F. (ed),
Enterprise and Secular Change. Homewood, Illinois: Richard Irwin.
HELMER, O. 1977. Problems in futures research: Delphi and causal crossimpact analysis Futures, Vol.9, pp. 17-31.
HELMER-HIRSCHBERG, O. 1967.
Analysis of the Future : The Delphi
Method, Rand Corporation.
HERRIOTT, R.E. and FIRESTONE, W.A. 1983. Multisite qualitative policy
research: Optimizing description and generalizability, Educational
Researcher, Vol 12, pp 14-19,
HIRSCH, R.F. 1989. Technology and Transformation in the American Electric
Utility Industry. Cambridge: Cambridge University Press.
HODGSON, G.M. 1993. Introduction and Conception and Evolution in
Economics? Three Twentieth-Century Theorists, Economics and
Evolution: Bringing Life Back Into Economics, Vol. 1, No. 52, pp 121 –
185. Cambridge: Cambridge University Press.
HOLLINGSWORTH, J.R. and BOYER, R. eds. 1997. Contemporary
Capitalism: The Embeddedness of Institutions. Cambridge: Cambridge
University Press.
HOOD, C. and JONES, D. 1996. Accident and Design: Contemporary
Debates in Risk Management, London: UCL Press.
HUGHES, T.P. 1988. Rescuing Prometheus. New York: Pantheon.
INGRAM, G. 1994. Infrastructure and Development, World Bank Report.
Washington DC: World Bank.
2008
383
Project Governance for Capital Investments
INNES, H.A. 1970. A History of the Canadian Pacific Railroad, Toronto:
University of Toronto Press, from MILLER, R. & LESSARD, D., eds.,
2000, The Strategic Management of Large Engineering Projects:
Shaping
Institutions,
Risks
and
Governance.
Massachusetts:
Massachusetts Institute of Technology.
IOD (Institute of Directors). 2002. Corporate Governance in South Africa – A
comparison of the King Report 2002 and The Sarbanes-Oxley Act of
2002. PriceWaterhouseCoopers.
ISHIKAWA, A., AMAGASA, M., SHIGA, T., TOMIZAWA, G., TATSUTA, R.
and MIENO, H. 1993. The max-min Delphi method and fuzzy Delphi
method via fuzzy integration, Fuzzy Sets and Systems, Vol. 55, No. 3,
pp. 241-53, from MULLEN, P., 2003, Delphi: Myths and Reality,
Journal of Health Organisation and Management, Vol.17, No.1, pp. 3752.
JAAFARI, A. 2001. Management of risks, uncertainties and opportunities on
projects: time for a fundamental shift, International Journal of Project
Management, Vol 19, pp. 89-101.
JAY, P. 2000. Road to Riches, London: Weidenfeld & Nicolson.
JESSOP, B. 1997. The Governance of Complexity and the Complexity of
Governance: Preliminary Remarks of Some Problems and limits of
Economic Guidance, In Amin, A and Hausner, J., eds., Beyond Market
and Hierarchy, pp 95 – 128, Cheltenham, UK: Edward Elgar.
JOLIVET, F AND NAVARRE, C. 1996. Large-scale projects, self-organizing
and meta-rules: towards new forms of management, International
Journal of Project Management, Vol. 14, No. 5, pp. 265-271.
JONES, A.H.M. 1974. from Micklethwait and Wooldridge, 2003, The Roman
Economy: Studies in Ancient Economic and Administrative History.
Oxford: Basil Blackwell.
JÖNSSON, S. and LUNDIN, R. 1976. Problem Solving without a Problem, FE
Rapport 1976:64. University of Gothenburg.
KATZENSTEIN, P.J. 1985. Small States in World Markets: Industrial Policy in
Europe, Ithaca. New York: Cornell University Press.
KERZNER, H. 1998. Project Management – A Systems Approach to Planning,
Scheduling and Controlling, 6th ed. New York: John Wiley & Sons.
2008
384
Project Governance for Capital Investments
KERZNER, H. 2006. Project Management Case Studies, Second Edition.
John Wiley & Sons, New Jersey: Hoboken.
KOCH, C. and BUSER, M. 2006. Emerging metagovernance as an
institutional framework for public private partnership networks in
Denmark, International Journal of Project Management, Vol 24, pp 548
– 556.
KREINER, K. 1992. The postmodern epoch of organization theory,
International Studies of Management and Organization, Vol. 22, No. 2,
pp. 37-52.
King Committee on Corporate Governance. 1994. King Report on Corporate
Governance for South Africa 1994 [King Report 1994], Institute Of
Directors, Johannesburg, South Africa.
King Committee on Corporate Governance. 2002. King Report on Corporate
Governance for South Africa - 2002 [King Report 2002], Institute Of
Directors, Johannesburg, South Africa.
KLIEM, R.L., LUDIN, I.S. and ROBERTS, K.L. 1997. Project Management
Methodology. New York: Marcel Dekker Inc.
KLOPPENBERG, T.J. and OPFER, W.A. 2000. Forty years of project
management research: trends, interpretations and predictions,
Proceedings
of
PMI
Research
Conference
2000
“Project
Management Research at the Turn of the Millennium”, pp.41-60,
Project Management Institute, Newton Square, PA.
KOSKELA, L. and HOWELL, G. 2002. The underlying theory of project
management in obsolete, Proceedings of PMI Research Conference,
Seattle, USA.
KPMG. 2003. Toolkit for the Company Director, 2nd Edition.
LAFFONT, J.J. and TIROLE, J. 1993. A Theory of Incentives in Procurement
and Regulation. Cambridge: MIT Press.
LAZONICK, W. 1992. Business Organisation and Competitive Advantage:
Capitalist Transformations in the Twentieth Century, from Dosi, G.,
Giannetti, R. & Toninelli, P.A., eds., Technology and Enterprise in a
Historical Perspective, pp 119-163. Oxford: Clarendon.
LEEDY, P.D. and ORMROD, J.E. 2001. Practical Research – Planning and
design, 7th ed. Upper Saddle River: Merril Prentice Hall.
2008
385
Project Governance for Capital Investments
LEGACE, J. 2006. Project success builds on a well-defined scope, Chemical
Engineering.
LETZA, S., SUN, X. and KIRKBRIDE, J. 2004. Shareholding versus
Stakeholding: a critical review of corporate governance, Corporate
Governance, Vol.12, No. 3, pp. 242-262.
LHWP. 2005. http://www.lhwp.org.ls/overview/overview.htm. Accessed on 27
July 2007.
LINDEMAN, C.A. 1975. Delphi survey of priorities in clinical nursing research,
Nursing Research, Vol. 24, No. 6, pp. 434-42, from MULLEN, P.,
2003, Delphi: Myths and Reality, Journal of Health Organisation and
Management, Vol.17, No.1, pp. 37-52.
LIENTZ, B.P. and REA, K.P. 2001. Breakthrough Technology Project
Management, 2nd ed. San Diego: Academic Press.
LINSTONE, H.A. 1978. The Delphi technique, in Fowles, R.B., (Ed.),
Handbook of Futures Research, pp. 271-300. Greenwood, Westport,
CT.
LINSTONE, H.A. 2002. VIII. Eight basic pitfalls: A checklist, from Linstone,
H.A. and Turoff, M. (Eds), The Delphi Method: Techniques and
Applications. http://is.njit.edu/pubs/delphibook/. Accessed on 27 July
2007
LINSTONE, H.A. and TUROFF, M. 2002. I - Introduction to the Delphi
method: techniques and applications, from Linstone, H.A., & Turoff, M.
(Eds),
The
Delphi
Method:
Techniques
and
Applications.
http://is.njit.edu/pubs/delphibook/. Accessed on 26 July 2007
LIU, L. and YETTON, P. 1995. The contingent effects of project governance
mechanisms on project delivery capability and the level of control –
evidence from the construction and IT service industries, Proceedings
of the Pan-Pacific Business Conference XXII, Shanghai, China.
LOO, R. 2002. The Delphi method: a powerful tool for strategic management,
Policing:
An
International
Journal
of
Police
Strategies
and
Management, Vol. 25, No. 4, pp. 762-769.
LUNDIN, R.A. and SÖDERHOLM, A. 1995. A theory of the temporary
organization, Scandinavian Journal of Management, Vol.11, No. 4, pp.
437-455.
2008
386
Project Governance for Capital Investments
MAF Information Bureau. 2007. http://www.maf.govt.nz. Accessed on 24
October 2007
Major Projects Association. 1994. Beyond 2000: A Source Book for Major
Projects. Oxford: Templeton College.
MALLIN, C.A. 2005. Handbook of International Corporate Governance –
Country Analysis. Edward Elgar, Cheltenham, UK.
MANICKAS, P. And SHEA, L. 1997. Hotel complaint behaviour and resolution:
A content analysis, Journal of Travel Research, Vol. 36, No. 2, pp.6873
MARCH, J.G. 1981. Footnotes to organizational change, Administrative
Science Quarterly, Vol. 26, pp. 563-577.
MARKANDYA, A. and SHARMA, R.Y. 2004. Case Study on Tajikistan Pamir
Private Power Project, Conference on Scaling Up Poverty Reduction,
Shanghai, China, March 25-27, 2004.
McCLEARN, M. 2004. Shady Acres, Canadian Business, Issue: August
16/2004.
McGREGOR, L. 2000. The Human Face of Corporate Governance,
Basingstoke: Palgrave.
McKEE, M., PRIEST, P., GINZLER, M. and BLACK, N. 1991. How
representative are members of expert panels? Quality Assurance in
Health Care, Vol. 3, pp. 89-94.
MELGRATI, A. and DAMIANI, M. 2002. Rethinking the project management
framework: New epistemology, new insights, Proceedings of PMI
Research Conference, Seattle, USA.
MERROW,
E.,
McDONNELL,
L.
and
ARGÜDEN,
R.
March
1988.
Understanding the outcomes of megaprojects: A quantitative analysis
of very large civilian projects, The Rand Corporation Publication Series
#R-3560-PSSP.
MEYER, J.W. and ROWAN, B. 1977. Institutionalised Organisations: Formal
Structure as Myth and Ceremony, American Journal of Sociology,
Vol.83, pp 340-363.
MEYER, J.W. and SCOTT, W.R. 1992. Organizational Environments: Ritual
and Rationality. New Park, CA: Sage.
2008
387
Project Governance for Capital Investments
MICKLETHWAIT, J. and WOOLDRIDGE, A. 2003. The Company: A Short
History of a Revolutionary Idea. London, UK: Weidenfeld & Nicholson.
MILES, M.B. 1964. On temporary systems, Innovation in Education, pp 437490.
MILLER, R. and FLORICEL, S. 2000. Transformations in Arrangements for
Shaping and Delivering Engineering Projects, from MILLER, R., and
LESSARD, D., eds., 2000, The Strategic Management of Large
Engineering Projects: Shaping Institutions, Risks, and Governance.
Massachusetts: Massachusetts Institute of Technology.
MILLER, R. and HOBBS, B. 2005. Governance regimes for large complex
projects, Project Management Journal, Vol 36, No 3, pp 42 – 50.
MILLER, R. and LESSARD, D., eds. 2000. The Strategic Management of
Large
Engineering
Projects:
Shaping
Institutions,
Risks
and
Governance. Massachusetts: Massachusetts Institute of Technology.
MINTZ, J.M. and PRESTON, R.S. 1994. Infrastructure and Competitiveness.
Kingston, Ontario: John Deutsch Institute.
MITCHELL, J.C. 1983. Case and situational analysis, The Sociological
Review, 31 (2), 187 – 211.
MONKS, R.A.G. and MINOW, N. 1995. Corporate Governance. 2nd Edition.
Oxford: Blackwell Publishers Incorporated.
MOORE, K. and LEWIS, D. 2001. Foundations of Corporate Empire, London:
Financial Times / Prentice Hall.
MORGAN, G. 1997. Images of Organisation, 2nd Edition. California: Sage.
MORRIS, P.W.G. 1994. The Management of Projects. London: Thomas
Telford Publishing.
MORRIS, P.W.G. 2004. Moving from Corporate Strategy to Project Strategy:
Leadership in Project Management, PMI Research Conference 2004,
United Kingdom: London.
MORRIS, P.W.G. and HOUGH, G.H. 1987. The Anatomy of Major Projects: A
study of the reality of project management. Chichester, England: John
Wiley & Sons, Inc.
Mozal Aluminium Smelter. 2001. Spectrum: SNC-Lavalin, http://www.snclavalin.com/en/2_0/pdf/mozal-eng.pdf. Accessed on 3 April 2007
2008
388
Project Governance for Capital Investments
Mozal - An Overview. 2005. http://www.mozal.com/, site accessed 03 April
2007
MULLEN, P. 2003. Delphi: Myths and Reality, Journal of Health Organisation
and Management, Vol.17, No.1, pp. 37-52.
National Association of Corporate Directors (NACD) Commission, 2002, from
KPMG, Toolkit for the Company Director, 2nd Edition.
NAIDOO, R. 2002.
Corporate Governance: An Essential Guide for South
African Companies. Cape Town: Double Storey Books.
NAIRU, Z. 1990. Project Management and Project Manager in China,
Proceedings of the 14th International Expert Seminar, Zurich.
NICHOLAS, J.M. 2001. Project Management for Business and Technology,
2nd ed. New Jersey: Prentice Hall.
Noord
Natie
Venstpils
Terminals.
2007.
Company
information
on
website,http://www.nnvt.lv/. Accessed 29 July 2007.
NORTH, D.C. 1990. Institutions, Institutional Change, and Economic
Performance. Cambridge: Cambridge University Press.
OECD, Principles of Corporate Governance - 2004 Edition. OECD Publication
Services, France.
Office of Government Commerce (OGC). 2005. Successful Delivery ToolkitTM,
www.ogc.gov.uk. Accessed on 21 August 2006.
ORIGO, I. 1992. The Merchant of Prato: Daily Life in a Medieval Italian City.
London: Penguin.
PAGE, C. and MEYER, D. 2005. Applied research design for business and
management. Australia, McGraw-Hill.
Penguin
Reference
Books.
1985.
The
Penguin
English
Dictionary,
Harmondsworth: Penguin Books.
PHILLIPS, R. 2000. New applications for the Delphi technique, Annual “San
Diego” Pfeiffer and Company, Vol.2, pp. 191-196, from MULLEN, P.,
2003, Delphi: Myths and Reality, Journal of Health Organisation and
Management, Vol.17, No.1, pp. 37-52.
PILL, J. 1971. The Delphi method: substance, context, a critique and an
annotated bibliography, Socio-economic Planning Science, Vol.5, No.1,
pp. 57-71.
2008
389
Project Governance for Capital Investments
PINTO, J.K. 2006, Principles of Governance for Major Investment Projects,
Concept
Symposium,
Trondheim,
Norway,
www.prestasjondelese.net/concept06/presentations/pinto.pdf,
accessed 14 July 2008.
PINTO, J.K. and MANTEL, S.J. The Causes of Project Failure, IEEE
Transactions on Engineering Management, November 1990, Vol.37,
No. 4, pp 269-276.
PINTO, J.K. and SLEVIN, D.P., 1988, Critical Success Factors Across the
Project Life Cycle, Project Management Journal, Vol. 19, No. 1, pp. 6772.
Power Engineering. 1990. Turnkey Contracts: Pitfalls and the Benefits,
January, pp 31 – 34.
PRINCE 2, Office of Government Commerce. 2003. Managing Successful
Projects with PRINCE 2. 5th Impression. London: TSO.
Project Management Institute. 2000. A Guide to the Project Management
Body of Knowledge (PMBOK® Guide), 2000 ed. Project Management
Institute, Inc, Maryland.
Protocol VI. 1999. Protocol VI to the Treaty on the Lesotho Highlands Water
Project - supplementary arrangements regarding the system of
governance for the project.
RAJU, R. 2007. Personal interview on 19 April 2007, Anglo Platinum Offices,
Johannesburg, South Africa.
REISS, G., ANTHONY, M., CHAPMAN, J., LEIGH, G., PYNE, A. and
RAYNER, P. 2006. Gower Handbook of Programme Management.
Gower Publishing, Hampshire: England.
RENZ, P.S. 2007. Project Governance – Implementing Corporate Governance
and Business Ethics in Nonprofit Organizations. Physica-Verlag,
Heidelberg: New York.
ROSS, J.F.L. 1994. High-Speed Rail: Catalyst for European Integration?,
Journal of Common Market Studies, June 1994, Vol. 21, No. 2, pp
1991-214.
ROSS, J.F.L. 1998 Linking Europe: Transport Policies and Politics in the
European Union. Westport, CT: Praeger Publishers.
2008
390
Project Governance for Capital Investments
ROZENES, S., VITNER, G. and SPRAGGETT, S. 2006. Project Control:
Literature Review, Project Management Journal, Vol. 37, No. 4, pp 514.
RWELAMILA, P.D., TALUKHABA, A.A. and NGOWI, B. 1999, Tracing the
African Project Failure Syndrome: the significance of ‘ubuntu’,
Engineering, Construction and Architectural Management, 1999, Vol 6,
No. 4, pp 335-346.
RYDER, G. 2007. Auditors expose flaws in Three Gorges project
management, Probe International, 06 July 2007. C:\DATA GIEL
2007\PM Research\Case studies\Probe International PM audit.htm.
Accessed on 30 July 2007.
SACKMAN, H. 1975. Summary evaluation of Delphi, Policy Analysis, Vol.1,
No. 4, pp. 693-718.
SAICA (South African Institute of Chartered Accountants). 2002. SAICA
Handbook, Auditing, Volume 2, Kengray.
SALISBURY, S. 1967. The State, the Investor and the Railroad. Cambridge:
Harvard University Press.
SAMPSON, A. 1995. Company Man: The Rise and Fall of Corporate Life.
New York: Times Business.
SCHEELE, D.S. 2002. II.C. Reality construction as a product of Delphi
Interaction, from Linstone, H.A. & Turoff, M. (Eds) The Delphi Method:
Techniques
and
Applications.
http://is.njit.edu/pubs/delphibook/.
Accessed on 5 April 2007
SCHOLL, W., KöNIG, C., MEYER, B. and HEISIG, P. 2004. The future of
knowledge management: an international study, Journal of Knowledge
Management, Vol.8, No.2, pp 19-35.
SCOTT, W.R. 1994. Institutions and Organisations: Towards a Theoretical
Synthesis,
in
Scott,
W.R..
and
Meyer,
J.,
eds.
Institutional
Environments and Organisations, pp 55-80. Thousand Oaks, Sage.
SEIB, G. and HARWOOD, J. 2002. “Rising Anxiety: What Could Bring 1930sStyle Reform of U.S. Businesses. Wall Street Journal, July 25, 2002.
SHANI, A.B. and LAU, J.B. 1996. Behaviour in organisations – an
experimental approach, 6th ed. Irwin, London.
2008
391
Project Governance for Capital Investments
SHEN,L., PLATTEN, A. and DENG, X.P. 2006. Role of public private
partnerships to manage risks in public sector projects in Hong Kong,
International Journal of Project Management, 2006, Vol.24, pp 587594.
SHENHAR, A.J., LEVY, O. and DVIR, D. 1997. Mapping the Dimensions of
Project Success, Project Management Journal, 1997, Vol.28 No.2, pp
5-13.
SHERIDAN, T. and KENDALL, N. 1992. Corporate Governance: An Active
Plan for Profitability and Business Success. Pitman Publishing:
London
SKAMRIS, M.K. 1994. Large Transport Projects: Forecast Versus Actual
Traffic and Costs, Report no.151. Aalborg: Department of Development
and Planning, Aalborg University.
SMERDON, R. 1998. A practical guide to corporate governance. Sweet &
Maxwell, London.
SMITH, A.L. 2006. The Governance Model: The Private-Public Partnership
Embodiment,
Management
Analysis.
http://www.crgp.stanford.edu/events/presentations/gcr2/Smith.ppt.
Accessed on 28 August 2006
South Africa, 2001: Cliffe Dekker:- King Report on Corporate Governance for
South
Africa
2002:
Introduction,
pp1-2,
http://www.cliffedekker.co.za/literature/corpgov/index.htm. Accessed on
5 July 2005
STOVER, J.F. 1997. American Railroads, Second Edition, Chicago: University
of Chicago Press, from MILLER, R. & LESSARD, D., eds. 2000. The
Strategic Management of Large Engineering Projects: Shaping
Institutions, Risks, and Governance. Massachusetts: Massachusetts
Institute of Technology.
Summary
Case
Study
Library
–
PMI.
2007.
http://www.pmi.org/WhoWeAre/Pages/case-study-library.aspx,.
Accessed on 31 July 2007.
SWANSON, E.R. and RAMILLER, N.C. 1997. The Organising Vision in
Information Systems Innovation, Organization Science, Vol. 8, No. 5,
pp 458 – 474.
2008
392
Project Governance for Capital Investments
The Standish Group. 1995. The Standish Group Report: T23E – T10E,
http://www.scs.carlton.ca/~beau/PM/Standish-Report.html.
Accessed
on 28 August 2006
The Standish Group. 2003. Press Release – Latest Standish Group CHAOS
Report Shows Project Success Rates Have Improved by 50%. March
25,
2003.
http://www.standishgroup.com/press/article.pho?id=2.
Accessed on 28 August 2006.
The United States of America. The Sarbanes Oxley Act of 2002. Government
Printer.
The World Bank Group. 2007. Bringing Power to the Poor in the Pamirs Tajikistan
Pamir
Private
Power
Project,
http://lnweb18.worldbank.org/eca/eca.nsf/General/66201C6DC20F591
785256C32006D471A?OpenDocument Accessed on 26 July 2007.
THOMPSON
JR,
A.A.
and
STRICKLAND
III,
A.J.
1996.
Strategic
th
management – concepts and cases. 9 ed. Irwin: McGraw-Hill.
TILLY, C. 1984. Big Structures, Large Processes, Huge Comparisons. New
York: Russell Sage Foundation.
Treaty on The Lesotho Highlands Water Project between The Government of
the Republic of South Africa and The Government of the Kingdom of
Lesotho. 1986.
TURBIN, N. 2003. IT Governance and Project Governance, The Project
Perfect White Paper Collection. www.projectperfect.com.au. Accessed
on 24 August 2006.
TURNBULL, S. 1997. Corporate Governance: Its Scope, Concerns and
Theories, Corporate Governance, Vol.5, pp180-205.
TUROFF, M. 1970. The design of a policy Delphi, Technological Forecasting
and Social Change, Vol. 2, No. 2, pp. 149-71.
United Nations, Economic and Social Council. 2005. Governance in Public
Private Partnerships for Infrastructure Development.
TRADE/WP.5/2005/2.
WEISS, J.W. and WYSOCKI, R.K. 1992. 5-Phase Project Management. New
York: Perseus Books Publishing.
Wikipedia.
2007.
Case
study
research.
http://en.wikipedia.org/wiki/Case_study. Accessed 2 May 2007.
2008
393
Project Governance for Capital Investments
Wikipedia.
2007.
Three
Gorges
dam.
http://en.wikipedia.org/wiki/Three_Gorges_Dam. Accessed on 30 July
2007.
WILD, C. and TORGERSEN, H. 2000. Foresight in medicine: lessons from
three European Delphi studies, European Journal of Public Health, Vol.
10, No. 2, pp. 114-9.
YEO, K.T. 1995, Planning and learning in major infrastructure development:
systems perspectives, International Journal of Project Management,
Vol. 13, No. 5, pp. 287-293.
YERGIN, D. and STANISLAW, J. 1998. The Commanding Heights: The Battle
Between Government and the Marketplace that is Remaking the
Modern World. New York: Simon & Shuster.
ZHUWAKINYU, M. 2003. Corruption busting: Lesotho in brave fight against
graft. Engineering News, Issue: 27 January 2003.
ZHUWAKINYU, M. 2004. Lesotho case shows that the corruptor is as guilty
as the corrupted. Engineering News, Issue: 30 July 2004.
ZILLMAN, D.N., LUCAS, A.R. and PRING, G. 2002. Human Rights in Natural
Resource Development – Public Participation in the Sustainable
Development of Mining and Energy Resources. Oxford University
Press; New York.
YIN, R.K. 2003. Case Study Research; Design and Methods. London: Sage
Publications.
2008
394
Fly UP